Friday, November 21, 2008

Will the Euro now come under pressure?

It is official: in the third quarter of 2008, the Eurozone economies shrank for the second quarter in a row. That means that they are now formally in recession.

When the Euro was launched in 1999, there was uncertainty about its future because it was the world's first currency (and remains the only currency) with no sovereign nation behind it, and it is the first (and only) currency in the world which operates independent of the fiscal and monetary policies that are followed by the rich, middling and poor countries in its region.

To everyone's surprise, the currency strengthened on launch, and has continued to do well till now. So much so that the Euro has even been mooted as the world's next reserve currency!

However, the entire career of the Euro has coincided with a historically-unprecedented (and artificially-induced) boom. Now that the world is in an economic depression, the question is: will the euro be able to continue to be a viable currency, as the the less-developed parts of the eurozone have started falling further behind the richer ones?

It is one thing to maintain a single currency within a region with such huge economic disparities when the constituent economies are converging - and, in any case, the poorer economies can be helped from the largesse of the richer economies.

It is quite another to maintain that currency when the economies are diverging, and when even the rich countries feel that they have little with which to help the poorer countries.

Quite suddenly, at some point, it is likely that the pressures will become intense.

Don't rule out speculation against the Euro. Don't even rule out the eventual break-up of the Euro.

I hope that I am completely wrong, because that will be terrible for all the countries involved. Sphere: Related Content

1 comment:

Papa Chuck said...


Ever since I met you and then discovered your blog, I have enjoyed and been stirred to think by your every entry. I would guess that there are many, like myself, who read but don't comment very often. Your open letter to Obama is excellent.

Thank you for sharing your insights, gifts and heart in such an open way.

Chuck Kelley