Money has been flowing out of Europe according to Jen Nordvig of Nomura securities, with $50 billion fleeing in January and February combined, based on available data, plus likely continued outflows since then.
Concerns regarding Eurozone debts, entitlement programs, and budget deficits surely factor into the equation, but the following rationale from Baring adds another dimension to the euro’s confidence problem.
“It’s making a few people think, ‘What am I getting into?’ ” said Colin Harte, director of fixed-interest and currencies at the London office of Baring, which has more than $47 billion under management. “What if you buy the euro and the Germans vote with their feet and leave” the currency union?
At least with the U.S. you know who will be behind the currency in 10 years, even if you then have to focus on the ugly debt and budget deficit numbers. Yet with Europe you aren’t even sure which debts or economies to include in the calculus given the current uncertainty. This is a simple yet enormous non-financial reason why the U.S. dollar offers more security. There are far less variables behind it even if its known variables aren’t pretty.