Euro Will Hold Up...For Now

Dollar demise, meet Euro demise.

All the dollar collapse/demise commentaries seem to be taking temporary rest. Now it's the Euro's collapse we're reading about. So what's with that?

Well, there's no denying the economic mess in Europe, if by economic mess you mean the balance sheets of many of its countries. Checking in with the famous "PIIGS" - Portugal, Ireland, Italy, Greece, Spain - we now find Italy coming apart. And make no mistake about it, the government of Italy faces tough decisions and possibly tough times for Italian citizens.

So with this next shoe falling, the Euro's future is again in question. But I wouldn't be placing any big bets against the Euro, at least not right now. Two reasons to hold off on the funeral arrangements:

1) The Euro was years - actually decades - in the making. With all the time and effort put into it, the folks who put all that time and effort into it aren't likely to give up so easily. They'll do everything possible to keep the Euro alive. People forget this factor.

2) The way the Euro is measured will make it tough for most people to know when it's really collapsing. You have to remember that when you hear that the Euro is "down," what that means is that its value has declined relative to the dollar. That's interesting and perhaps important if you're traveling in Europe, as I recently was. Your dollars will get more Euros, so you're purchasing power goes up.

But meanwhile, we all know that the dollar's value has been declining too. Just check your last shopping receipt. I just went shopping and, frankly, it's starting to get a bit unnerving. Prices really are pressing relentlessly up.

So if I know my dollar has been losing value, and the Euro's been losing value relative to my dollar, does that mean the Euro's losing even more value than it seems to be losing?

Is this getting confusing? See, what happens is that currencies are typically measured against other currencies. But if all those currencies are constantly moving up and down - which they are - then how can you really measure anything? I've got a solution. Use gold as your measuring stick.

So back to the Euro, if we measure the Euro against gold, what do we find? We find that the Euro has recently sunk to its lowest value relative to gold. So that means that the Euro is indeed losing value, in some way we can really measure.

Now, when the Euro rallies - and it eventually will - it will seem like its going up in value. And perhaps it will relative to, let's say the dollar. But check it against gold when it rallies. That will give you some sort of reliable way to know what's really happening.

Meanwhile, Italy's another story. That's something we need to keep our eyes on. Having just returned from Italy, I may have some things to say in coming posts.

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