Failing Euro: Why Euro Is Failing in Today’s Economy?

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Table of Contents

Background and History
Events Table
Current Specific Impacts of the Issue on a Global Market Economy
Conclusion
References

Background and History

January 1^st, 1999 is considered to be a memorable day in the European history of its economy. On this day the 11 European states decided to change their existing currencies and to shake hands on one single currency, which was named as Euro. The official implementation of the usage of this currency started on December 2001, however, the bills and coins of the countries that joined the hands-on Euro, remained in circulation for a bit more time till January 1^st, 2002, after which they were permanently replaced by the Euro coins and bills system. (Prof. Werner Antweiler, n.p)

The 11 European countries created the Euro in order to maintain stronger and more stable economic relations among them. To achieve this target they wanted a uniform currency, which is run throughout Europe, and there is no exchange fatigue anywhere.

Events Table

The actual programs of how the Euro was implemented and how the decisions were taken is mentioned in the table below:

Date	Events
May 1-2 1998	Decision on the participation of member states and to announce bilateral exchange rates between the member countries.
June 30- 1998	ECB-European Commission Bank was inaugurated
January 1, 1999	The official announcement of the Euro as a single currency for European countries.
January 1, 2001	A new member was added to the 11 European States group, the twelfth country was Greece.
January 1, 2002	It is named as E-Day because the actual implementation of the Euro started this day with the circulation of coins and notes of new currency.

(Antweiler, 1).

The Eligibility Criteria to use Single Euro Currency

There were four criteria as defined in the Maastricht Treaty, which are required to meet in order to be eligible for the use of a single European currency.

The stability of price
Fiscal Stability
The membership of the European Monetary System
Conversion of Interest Rate (Antweiler, 1)

The Representation of the Currency

Every established currency in the world has some representation symbol to identify it, may it be Dollar, Yen or any, likewise the euro’s symbol was decided to be a stylized e with double lines on it and a blue background. (Antweiler, 1)

Remarks in Favor and Against the Euro

Favor	Against
A single currency for a number of countries reduces the cost of conversion and eases business transactions.	Since the new currency needs to be implemented therefore there was an extra cost involved like the introduction of new coins and notes etc which put some extra burden on banks and businesses.
Since it was expected that after the change in the currency it would be easier for all the states to communicate and match prices and payments on a uniform scale, which would surely increase the investments and benefits related to it.	The change in the currency could affect the Fiscal policy of Europe, some opponents assumed this; since the currency is uniform hence an increase in interest would affect all the states following this single currency culture.
It was expected and was later observed as well that Euro will be one of the powerful currencies in the world.	The time of recession might be tough because the devaluation of currency is difficult and increasing export in a uniform currency system might be a tough job.

Source: (Antweiler, 1).

Why Euro is failing in Today’s Economy?

In today’s economy, there is so much uncertainty that one cannot ever assume what can happen the next day. No matter how stable an economy today leads to which path. The current years brought great disturbance, fluctuations in the economy, investments, stock market, etc. This has affected established and stable economies of the past. The recession time has not come for the US only but Europe is also adversely affected.

The Euro is going to face serious danger in the present time, it is said by many researchers and analysts and even by the Prime Minister of Luxembourg, the president of Euro Group, Jean-Claude Juncker, and Karl Otto Pohl, former Chief of the Bundesbank. The basic aim of the creation of the Euro was to converge the economy however it diverged the economy in few years.

After a certain period of its implementation, it has been observed that it didn’t work very well for increasing jobs, businesses, and economic stability in the EU. A report prepared by a French think tank on Euro and its declining situation concluded that:

“Economic integration has stagnated and no longer promotes growth. The Euro’s creation has not produced the knock-on benefits expected. Financial and credit markets remain segmented”. It has been declared in the report that all the great resolution made at the inauguration of Euro has failed about a tax cut, about economic reform and about welfare, etc. The economic growth of Europe has declined by 2.4%, before the new currency was introduced, to 2.1% after its introduction and implementation. (Democracy movement survey, 1)

Another reason for its decline as described by experts is the bad management of the currency and lack of experimentation in recession times. Economies at the national level can never bear the burden of a single uniform currency with the inflation rate affecting simultaneously all of them since there can be a variety of situations found in them, according to their structure, potency, weaknesses, etc. It has also been said that its failure might be due to a lot of political intervention in it i.e. the whole idea was so much politicized.. (Democracy movement survey, 1)

Current Specific Impacts of the Issue on a Global Market Economy

The impacts good or bad are however faced by all the members of any organization when they are united and work under one roof. Similarly, the impacts of the union of EU states on a single currency were good as well as bad since its beginning. During the first two decades, there were different sorts of problems faced by the Euro, which didn’t affect all the members directly. The major problems were the higher power of the dollar 1999-2002 and then the oil crises 2005-2008.

The European countries, which were dependant on Europe’s trade, faced great import inflation as compare to that dependant on international trade. The buying ability of the Euro in Eurozone countries has been affected due to disturbance in monetary and fiscal policies as well as inflation increase. The inflation increase has so adversely affected the countries related to European Trade that Euro is drastically flopping in many countries. The labor Cost indices revealed the fact that from 1999-2008 the Euro in Italy is overrated by 41% as compared to the Euro in Germany. And this problem cannot be resolved until the countries under this increase their productivity, and wages. (Jacque, 1)

Will the Euro Rebound from its Current State?

This is a very important question under the discussion of this topic. Since the recovering time has been started there has been observed slight changes towards a positive perspective of Euro. The beginning of 2009 brought a new wave of hope for Euro rebound. The selling-off of USD, signs of risk aversion rising up from time to time continued to represent a more stable euro rebound. This has also been observed in the same time period that the intra-EMU government bond spreads are going down rather drastically. There are many pros and cons related to the persepective of ECB wheather it has supported the European economy or not? However when analysed properly it is said that the policies ECB has taken for the revival of the economy are not strict and may lead Euro to survive for a longer period in the economy. (KBC Market Research Desk, 1)

Conclusion

The creation of Euro as a unifrom currency for the European states was an idea to achieve the goals like:

It will be a powerful currency of the future
It will be stable
It will cut inflation and converge economy
It will revive dollar

At the time of its implementation in 1999 there were several myths as well which were later proved wrong those myths include the remarks like the uniform currency can never be able to dominate in the glbal economy, since there will be no competition among the countries investing in Europe will be a big NO, Unemployemnt in Europe is in double-digits, and many more. However from the discussion we have done throughout this paper revealed certain facts about them being invalid. We took a look at its emergence, its failing in today’s economy, its impact on the global market and finally will it be rebounded in future or not.

There are many reasons why it started to fail these reasons include political issues, economic disturbances, increasing inflation rates etc, on global market it had mixed impacts (during good times and at times of recessions). The countries dependants on the European Trade were highly affected by the crucial time faced by Euro as compare to the rest of the world. The rebounding period has started slowly since the start of 2009, the inflation rate is observed to be declining gradually, and the ECB has taken supportive steps for its revival and long-term existence in the economy!!

References

Prof. Werner Antweiler, The Euro, Europe’s New Currency, 2001, Web.

Democracy Movement Survey,The Euro, n.d. Web.

KBC Market Research Desk, FXStreet.Com,2009. Web.

Laurent Jacque, Is the Euro Doomed? Counter Punch, 2009. Web.

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