Matthew Lynn

W

Next to the demise of the euro, the implosion of Lehman Brothers would look like a fairly trivial event. Of course, we shouldn’t overestimate the likelihood. The deal cobbled together by the European Union and the International Monetary Fund may be enough to keep the Greek trade unions, the German taxpayer, and the hedge funds speculating in the bonds, all happy. Miracles happen — just not that often.

The Greeks don’t appear to be in any mood for the years of grinding austerity that their economy will need. Nor do the Germans seem willing to help out what they see as a bunch of Mediterranean layabouts.

When a relationship is that fundamentally incompatible, even the most skilful marriage counsellor might think it was about time to start talking about how to divide up the assets and calling it a day.

So, if the euro might not be around in 2020, here are seven trades to start thinking about.

LONDON

The FTSE 100 was down 39.28 points, or 0.7 per cent, at 5,371.83, while Germany’s DAX fell 31.88 points, or 0.5 per cent, to 5,974.98. The CAC 40 in France was 18.12 points, or 0.5 per cent, lower at 3,671.17.

The rioting reinforced concerns that the Greek government will not be able to deliver on its side of the bargain.

As if developments in Greece were not bad enough, investors were reminded of the precarious situation in Portugal, after Moody’s Investor Services warned that the country faced a possible two-notch downgrade in its current credit rating of Aa2 some time over the next three months.

“The review for possible downgrade will consider a repositioning of Portugal’s ratings to reflect the potentially lasting deterioration in the government’s debt metrics,” said Mr Anthony Thomas, a senior analyst at Moody’s.

The possible debt downgrade has come as yields on Portuguese and Spanish 10-year bonds have pushed higher as investors worry that the countries could be next in the firing line — both have hefty borrowing levels that need to be brought down this year at the same time as debts have to be repaid.

IMF managing director Dominique Strauss-Kahn did his best to dampen speculation that Portugal, in particular, is next in line for a bailout but Mr Axel Weber, the president of Germany’s Bundesbank central bank, warned of “grave contagion effects” in the euro zone.

As a result, a number of analysts are beginning to think that the European Central Bank will have to get more involved in the crisis to keep Spain and Portugal from being dragged into a debt crisis quagmire like Greece.