There is no “goldilocks scenario” for the euro – the sharp recovery in late 2012 came as the market realised that the European Union members are more committed to union than was previously believed. But the current “solutions” of an European Central Bank backstop and an EU banking union still offer no real relief from debt deflation at the periphery. Even if Germany allows itself to be coerced into ever-deeper union and towards a euro bond, the EU only holds together longer term with massive new Quantitative Easing from the ECB, because one way or another, the periphery must be allowed to devalue. At some point in Q1, therefore, there will be a transition away from the reduction in tail risk theme and toward the view that the euro must maintain its relative position in the competitive devaluation race in which it has lagged greatly so far. It is either that or we see a spike in euro strength leading to an EU breakup as the disciplinary EU core sees the periphery bid adieu to the European Monetary Union. The first major testing ground for EU solidarity will be Italy’s pivotal general election in Q1.