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One of the reasons for the US Constitutional Convention and the resulting ratification of the current Constitution was a situation similar to the one the EU is in.

Deutsche Bank, et.al., have shown they could give a rat's ass about the EU Project® simultaneously they have shown they deeply care about getting their money back, with interest.  If the euro goes ker-blewie the financial instruments denominated in euros has as much value as German bonds denominated in Reichmarks.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Aug 11th, 2011 at 01:44:35 PM EST
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If the euro goes ker-blewie the financial instruments denominated in euros has as much value as German bonds denominated in Reichmarks.

No, if the €-Mark goes boom, those instruments will have as much value as ones denominated in D-Mark, as long as you possess sufficient political connections to the German government.

Of course the rest of the Eurozone may well be a wasteland by that point, and the German economy may well find itself fresh out of customers. But the currency will be sound.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:16:55 AM EST
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It will depend on the nationality of the issuer. Everyone will try to pretend their obligations were issued by greek entities and are therefore in Drachmas.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Aug 12th, 2011 at 07:22:21 AM EST
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Not if the way the €-Mark falls apart is by ejecting the internal deficit countries one by one. Bailouts will then be decided on a case by case basis. Which means that what matters is how on how tight your political connections are to the CDU and the Quisling wing of the SPD.

Clearly, a number of bondholders view themselves as quite secure on that count. They may end up being surprised, of course, but by then the rest of us will be too busy trying to keep our heads above water to have much fun pointing and laughing.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 09:35:43 AM EST
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Overall, the history of a currency collapse is the holders of bonds, etc., in that currency can suck eggs.  There's no global agency to enforce a legal decision on a national government.  Offsetting that, ss you rightly say. who, what, and how much of these instruments are backed in the new currency depends on the Decision Making of the elites in the defaulting country and the connections (being "one of the kewl kidz") the holders have.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Aug 12th, 2011 at 12:39:27 PM EST
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