Inside Investment: Currency disunion

A decade ago you could not avoid the euro. Every conference organizer and bank was jumping on the events bandwagon in the run-up to the launch of the single currency on January 1 1999. However, as the single currency approaches its 10th year it is hard not to think that this fanfare was fully deserved. The single currency has not only survived, it has prospered. With the euro climbing to new records against the US dollar on an almost daily basis there are doubtless plenty of smug central bankers in Frankfurt.

However, in spite of its apparent success, the euro looks more vulnerable now than at any time since its creation. The reason is the diverging fortunes of the Europe’s economies. Germany runs the world’s largest current account surplus in absolute terms, at $286 billion, or more than 5% of its GDP. Spain runs the world’s second-biggest current account deficit,...