Today, members of Europe’s periphery are faced with the inverse of Pascal’s wager. The potential devastation wreaked by the break-up of the currency union is so great that it makes sense to take precautionary actions however unlikely that outcome may be. Unfortunately, the protective measures that Spaniards and others are taking have dire economic consequences. As a result, they raise the probability of a worst-case outcome.
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The writer: Edward Chancellor is a member of the asset allocation team at investment manager GMO