The battle for Europe is on. As predicted in our last blog, once you raise a question about the safety of Government guarantees an ugly genie gets out of the bottle. Much like how Michael Mc Dowell's infamous comments about stamp duty put a hex on Irish property values, Angela Merkel's comments on the safety of Eurobonds has triggered a panic. Right across Europe, bond yields have been rising and with it the cost of insuring against default risk.

You'll remember at the outset of our own crisis, markets repeatedly priced Irish bank shares down disbelieving official reports, reviews and comments by Government and regulators. Well markets now sense that several European countries are concealing the true level of debt to GDP and unreported bad debts at their heart of their banking systems -except for Germany.

German banks have has crossbred and have vast exposure to other Euro economies and their banks bonds. Either this contagion is resolved through a breathtaking intervention that stabilises the market and may yet involve transferring some of our national debt to the centre, or the Euro goes on to the funeral pyre.

Fast Moving Three Days

The game has moved on rapidly in just three days following our last analysis written the morning after Ireland's bail out. Remember any cross-European solution will involve printing Euros to fill the holes in banking systems or to buy impaired Government bonds. That means the big question now is how do I protect my hard earned cash from a devalued Euro?

The Euro Cloud with the Silver Lining

• Gold and silver remain strong harbours for deploying out of Euro. As predicted silver has surged having been underpriced relative to gold. In November silver jumped 22% in Euro terms as Europe's currency fell and the precious metal strengthened due to worries about currencies globally. It also climbed 16% against the dollar.
• For a minimum of about ten grand you can buy silver certificates from the Perth Mint in Australia through its European agent Goldcore. You can also get at silver through exchange traded commodities like ETFS Securities Physical Silver quoted on the London Stock Exchange. The ticker is PHAG. Talk to a stockbroker or ideally execute the trade through on-line flat fee specialists like TD Waterhouse.

Down Under for Aussie Dollars

• Another way of diversifying some cash from Euro is to change it to a strong currency, but which one? Sterling is under threat from a weakened UK economy and quantitative easing, which rules out popping over the border. The US dollar is at risk to going into the tank as well. Better a currency backed by lots of physical assets ie commodities and from as far away from the Euro-sphere as possible. The Australian dollar stands out as the economy benefits from huge inflows because of demand from its mines from the fast growing Asian economies. In November the Aussie dollar jumped 3.7% against the Euro and its base rate is 4.75% several notches above the Euro at 1%.
• You don't have to fly Quantas to Sydney to open up a bank account. Instead you can invest in a Aussie Dollar money market fund registered at the Luxembourg FSC like that managed by JP Morgan one of the world's largest asset managers. The running yield on the fund is currently over 4%.

Warning

But a word of warning; Risk is double sided. Any type of switch out of Euro inevitably means taking foreign exchange risk. That means you can lose or gain depending on how Europe resolves its nascent currency crisis in the short term. Still having some cash diversified does lower your overall risk to the forces now unleashed. To invest in Silver Certs or Aussie Dollar Cash Funds simply answer the three questions here