August 20, 2012

You know the euro is in deep water when a doyen of the banking industry, Lord Jacob Rothschild takes a £130 million ($200 million) bet against it. Lord Rothschild, an elder member of the dynastic Rothschild banking family, has taken the position against the euro through RIT Capital Partners, the 1.9 billion pound investment trust of which he is executive chairman, according to a report in the British newspaper The Daily Telegraph.

As cynicism that the single currency is on its last legs continues to spread among some euro zone politicians and the public, the influential financier has used the currency as a form of hedge.

RIT has taken a 7 percent net short position in July, in terms of principle currency exposures on the euro [EUR=X  1.2352    0.0009  (+0.07%)   ], up from a 3 percent net short position in January. “Given a net asset value of £1.836 billion at the end of July, the position is worth £128 million,” the newspaper reported.

The Telegraph quoted sources close to the banker as saying that that his current position against the euro is a realistic one given that the currency remains weak and not a “dogmatic, negative view” on the currency per se.

Thanos Vamvakidis, head of European G10 FX Strategy at Bank of America Merrill Lynch Global Research, told CNBC’s “Squawk Box Europe” that the euro was in a way a victim of systemic ills and uncertainty pervading the region’s economies.

Uncertainty over the future of the single currency is putting pressure on the European Central Bank (ECB) to act decisively when it next meets in September to address borrowing costs for Spain and Italy and loan-repayment terms for Greece, a country whose potential “Grexit” is a hot topic of debate.

“In the euro zone we don’t know what euro zone fiscal policy, particularly in the periphery, will look like moving forward,” he said. “The ECB has been somewhere in the middle of trying to address concerns about the economic outlook, and at the same time, putting pressure on the euro zone authorities for reforms.”

Dissent is growing among the euro zone’s AAA-rated countries with the Finnish foreign minister Erkki Tuomioja being the latest high-profile politician to claim that European leaders must prepare for a euro zone breakup. Tuomioja claimed that a break up would make the EU stronger.

German Chancellor Angela Merkel and Mario Draghi, have both said that they will do whatever it takes to keep the euro zone together though concerns that the currency cannot survive the schism between the euro zone’s north and south and the gulf between debtors and paymasters gets deeper.

CNBC