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Mr. Lee Kuan Yew on the eurozone crisis.

Saturday, January 14, 2012

I just received the latest copy of Alumnus in the mail and on page 4 is a one page write up on what Mr. Lee Kuan Yew said during LKY School of Public Policy's 7th Anniversary. He said something about the eurozone which got me interested enough to search for more details online.

The one liner that got me interested was: "Mr. Lee thinks European leaders will try very hard to prevent the collapse of their currency union but he does not believe they will be able to keep it going." So, does he think that the eurozone will ultimately dissolve?

Searching the internet, I found a website with the details:

... European leaders will try to save the euro zone from collapse, because a collapse of the currency union would be “an admission that their aspiration for one Europe is not achievable”.


“A fundamental problem of the euro is that everybody, every European country, march to the same drummer whereas each country has its own tempo and you cannot expect the Greeks to march like the Germans, so the problem will not go away”.

Therefore, he added, “a two-tier Europe or even a three-tier Europe is possible but a one-tier Europe with different spending habits, thrift habits and discipline is too difficult to achieve”.

The euro came into existence in 1999 with the aim of increasing economic cooperation and growth in Europe, and upping Europe’s presence on the world stage.

With the recent debt crises, the currency union forces other European countries to bail out troubled  members and policymakers are denied the flexibility of monetary policy as a tool to fight recession.

Read articles: here and here.

So, will the eurozone go the way of the Dodo? If it will, when will it happen? 

Your guess is as good as mine. 

One thing is for sure, Mr. Lee Kuan Yew has spoken and I will take note.

Seven eurozone countries had their ratings confirmed while nine were downgraded by S&P on 13 Jan (Friday). It downgraded France's top AAA rating by one notch to AA+, with a negative outlook while  Italy went down by two notches to BBB+, negative outlook, and Spain was also down two notches to A, negative outlook.

Read article: here.


Updated on 25 June 2016: Prime Minister David Cameron is to step down by October after the UK voted to leave the European Union. Speaking outside 10 Downing Street, he said "fresh leadership" was needed. The PM had urged the country to vote Remain but was defeated by 52% to 48% despite London, Scotland and Northern Ireland backing staying in. (Source: BBC)

The UK is likely to lose its AAA credit rating after it voted to Leave the EU. Moritz Kramer, chief ratings officer for S&P, said on Friday morning that the UK's AAA rating was “untenable under the circumstances”. German daily newspaper Bild quoted Kramer as saying: “If Great Britain decides for a Brexit in the EU referendum on Thursday, then the AAA credit rating would come due and would be downgraded within a short period of time.” (Source: Independent)

Related post:
Stakeholders should worry as credit is tightening.


Hwang said...

Pretty much concur with Sr Lee.

In the coming months, they will have to decide whether to dissolve, or shrink the EU common currency zone to a lesser yet stronger core. No way they can keep this going, and those in trouble will be better off alone.

Sometimes survival is more important than "face". No?

INVS 2.0 said...

Hi Ak71,

Well, to be a bit thick-skin, long before LKY made this comment, I already knew that a united Eurozone is not possible. Like the factors mentioned, every country has its own unique economy, how can every player in the Europe listen to the same tune? It will be eventually collapse, either sooner or later.

No wonder UK refuses to join the eurozone. :)

Ray said...

Well, Old Lee is not always right.
I don't think Euro will disappear but there will be a tighter governance on how each country can spend / lend w.r.t their GDP.

Just my $0.02.

FoodieFC said...

I also feel that the crisis is bound to happen. The richer cousins in EU cannot keep saving the poorer cousins. It's just a matter of time the Greek default happens. I rather it comes one and for all ( rather than we all keep anticipating). The longer it is delay, the recovery might be longer.

Well thats what I think. No one will every knows what happen =)

AK71 said...

Hi Hwang,

Face? Indeed, the Greeks could be slapping themselves hard in the face until it swells in order to look fat. Da zhong lian pi chong pang zi. ;p

AK71 said...

Hi INVS 2.0,

You are in the same class as Dame Margaret Thatcher. ;p

I got the inkling that the eurozone would not work too because of her insights into why artificial States are bound to fail. We have seen the failure of the former Yugoslavia and Czechoslovakia. Could we see the eurozone failing next?

AK71 said...

Hi Ray,

For everybody's sake, I hope Mr. Lee is wrong. There is going to be hell on earth if the eurozone does dissolve. This, I am sure of.

AK71 said...

Hi FoodieFC,

Indeed, this is a long drawn process. Whether the process is leading to recovery or just delaying the ultimate demise of the eurozone is anyone's guess.

All we can do is to make sure we have taken adequate measures to do relatively well in both scenarios. The only method I know of is to stay 50% invested. :)

FoodieFC said...

Hi AK71,

yes, I remember you saying to stay 50% invested. That's what I am doing now =)

AK71 said...

Hi FoodieFC,

As long as you are comfortable at 50%. ;)

Good luck to both of us. :)

Anonymous said...

Some believe the ECB will keep printing their way out of the crisis.

Sounds simplistic but thats the way it has been for US, and so far, the Euro zone.

Face factor sometimes cannot be under estimated.


SnOOpy168 said...

To save face (and their own high paying jobs), the eurocurats will fight and fight to save the Euro. Don't deny that the Euro makes it easier for travels and trade but I think LKY is right here.

Thats why when a common asian currency was mooted, it was shot down. I simply can't imagine Singapore bailing out Indonesia or other country over their spendthrift (and corrupted) budget. The de facto "common currency" is still the USD in lesser developed countries around sillypore. Can do lah.

AK71 said...

Hi Aaron,

For sure, many care about face. :)

It is also this care for face that ends up hurting or even destroying many. Is face a priority? Many times, it would seem to be the case.

AK71 said...

Hi SnOOpy168,

I would not brush aside Indonesia so quickly. Remember that theirs was the only economy in S.E. Asia that did not suffer a recession in the last crisis. ;)

Ray said...

For the same reason, Singapore bailed out Indonesia, Germany, France and ECB (not to forget China) will attempt to bail out the PIIGS.

Euro must not fail sensationally. It may die a slow and peaceful day eventually but not with a loud abrupt thud! The economists, world leaders know that. Even as far as China, the leaders know that. They will try their very best to help the situation.

That's coming out of my crystal ball now. Hope its not hallucinations. :)

AK71 said...

Hi Ray,

I do not know if the Chinese really want to help the eurozone. LKY seems to think that they are not really interested in doing so.

Anyway, my crystal ball is cloudy on this one and I am getting a little cross eyed gazing into it. Haha.. ;p

Ray said...

Haha, we can all gaze into our crystal balls until the cows come home and become beef and still nobody dare to say for sure what will happen to the Euro.

To reiterate my point, even Old Lee with all his wisdom, is not always right.

Based on Old Lee's point, the communists wanna buy Euro bonds on the cheap and hope the investment give good returns. Then surely they dont want Euro to default or else the bonds become waste papers.
Common sense tells us then China has a vest interest (billions worth, in fact) in Euro's survival.

AK71 said...

Hi Ray,

Well, the deep pocketed can take on more risks, I guess. Definitely not for smaller players. See where it got MF Global? Yikes!

I cannot imagine the reaction from the Chinese if they were asked to accept a debt haircut which is what lenders to Greece must do now. Could be a bottomless pit.

JCK said...

How would a slowdown in Sngapore affect the various REITs?

Waht sector will be worst hit?

AK71 said...


REITs can handle even zero growth environments. A slowdown in economic activities to a low single digit growth is not going to impact REITs very much.

You might want to read blog posts such as this one:

Staying positive on S-REITs.

Of course, you would have to draw your own conclusions and decide on what is comfortable for you. :)

Ray said...

Just something interesting to note: all stocks in my watchlist fell today. But Reits either stayed flat or climbed in the case of AIMS.really showcase their defensiveness aginst economy news.

AK71 said...

Hi Ray,

S-REITs are entering this difficult period with stronger balance sheets compared to the last crisis. Mr. Market knows this. :)

SnOOpy168 said...

smile Ray. everything is up today.

Ray said...

Haha not everything. First Reit and cap land dropped slightly.

JCK said...

Any thoughts on Cambridge REIT?
Looks pretty good with growth as well.

AK71 said...


You might be interested in these blog posts:

Cambridge Industrial Trust: Worth another look.

Cambridge Industrial Trust: Templeton and acquisition.

Good luck. :)

AK71 said...

It is not over yet. The EURO could see more weakness. Things could get worse before they get better.

"Portugal will inject 4.4 billion euros (US$5.9 billion) into the crisis-hit Banco Espirito Santo (BES), central bank governor Carlos Costa announced late Sunday (August 3), amid fears of a catastrophic bank run.

"The country's third-largest banking group will be split into two entities, with its toxic assets isolated in a "bad bank" and its healthier assets regrouped in a new bank called simply Novo Banco, Costa said.

"Novo Banco will be controlled by the Resolution Fund set up by Portugal's banks as part of the conditions for a 2012 national bailout by the troika of the European Union (EU), International Monetary Fund (IMF) and European Central Bank (ECB).

"In intervening to deal with the ailing bank, which recorded first-half losses of 3.57 billion euros last week, the Lisbon government is seeking to avoid contamination throughout its fragile economy and into the wider eurozone."

Ray said...

Not to mention the Russia-Ukraine "war" that will result in sanctions on Russia which also hurt Germany and Italy's economies....

Things really could go worse from here....

PassivePeon said...

Oh wow. A 'little' late but LKY's insights back then is so reflective of the current Euro situation now. A-M-A-Z-I-N-G *jaws drop* He's really a man like no others.

Unknown said...

This man can see the future mostly. I am buying gold n silver. Never said never.

AK71 said...

A "German euro" was nearly 17 percent undervalued against the dollar in PPP terms, while a "French euro" was overvalued by nearly 5 percent. A "Greek euro" was overvalued by 7 percent.

"German exporters remain the beneficiaries of a system that is causing stagnation and unemployment in the rest of Europe," World Economics said in the report.

The International Monetary Fund also said last year that the euro was undervalued by anywhere from 0 to 10 percent for the region as a whole.

But for Germany that undervaluation was anywhere between 10 and 20 percent, making it the most undervalued exchange rate for any of the 29 countries and jurisdictions around the world covered in the report.

The latest weakness in the euro has been largely driven by the divergence between U.S. and euro zone monetary policy, and bond yields. The U.S. Federal Reserve is raising interest rates, while the ECB is pumping hundreds of billions of euros stimulus into the economy through quantitative easing.

European Commission's latest figures up to the second quarter of last year show that Germany has experienced a deprecation of the real exchange rate - how much the goods and services in the domestic country can be exchanged for the goods and services in another country - of around 7.5 percent within the bloc since the euro's inception in 1999.

That gives it a major competitive gain. Most members have experienced an effective currency appreciation, some such as Slovakia a virtual doubling of their exchange rate.


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