Financial Times Deutschland says the key to whether or not the Eurozone holds together depends on Bundesbank president Jens Weidmann.

Will he or won’t he go along with ECB president Mario Draghi’s hint that the ECB is about to purchase more sovereign debt.

Via Google Translate, please consider Everyone looks at Weidmann

Twelve of 26 economists see the probability of a breakup of the euro zone at 20 to 30 percent. From the perspective of ten economists, the risk is ten percent. Anna Grimaldi, the Italian bank Intesa Sanpaolo sees a 40 percent chance and John Greenwood of Invesco investment company rates the probability at 70 percent.

At the other extreme are Anders Matzen at Swedish Nordea Bank, which estimates the probability of survival of monetary union to 95 percent, and Ulrich Kater from Deka Bank who sets the value at 99 percent.

Most economists indicated that they were convinced that the position of Weidmann will be crucial in deciding whether the ECB more than at present to save the euro is taking. “The attitude of the Bundesbank to the program for the purchase of government bonds is more important than their normal attitude to monetary policy, since the program moved to the edge of the contractual mandate,” said Torge Middendorf from WestLB.

Not So Simple

Certainly a huge feud between Weidmann and Draghi will not help. However, that is not the only issue. The German supreme court can step in at anytime and demand a voter referendum.

The UK can and probably will single-handily torpedo the treaty changes proposed by Merkel and Sarkozy.

According to the Washington Post, British Prime Minister David Cameron said he did not intend to “pass any powers from Britain to Brussels.” He noted that if the treaty changes suggested by Sarkozy and Merkel require such a transfer, he would have to call a national referendum to approve them.

Will UK voters pass that referendum? I see a zero percent chance of that. Then what?

Please see Eurozone Treaty Changes to be Finalized in March, Then a Vote in May, Then Country-Specific Referendums, Then? for further discussion.

Ireland, Germany, or Finland may also torpedo the agreement.

Moreover, voters in Spain, Portugal, or Greece may eventually (and correctly) say to hell with all this austerity just to pay back French and German banks.

To repeat what I have said several times:

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the “bail out” debt foisted on their country to be null and void. That person will be elected.

What are the True Odds?

A few months ago, economists would have pegged the probability close to zero percent. The shift of 14 economists to 20% or greater probability is a significant shift in the right direction.

It’s important to remember that economists are a perpetually optimistic lot. Ironically, a breakup is likely before economists agree it will happen.

Taking everything into consideration, the probability the Eurozone stays intact is arguably 15 percent at best.

Mike “Mish” Shedlock
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