Vlad Demochko
The collapse of the common European currency has been discussed since the beginning the latest global crisis, which started 3 years ago. In 2010 the world got more concerned about the destiny of Euro after Greece and Ireland asked for external financial aid. This spring’s events only added fuel to the fire: Portugal joined Greece and Ireland and asked for a loan to avoid a default, with Spain and Italy being next in the line. Italy is the EU’s 3rd biggest economy.
Analysts say that, firstly, the steps taken by the eurozone, the ECB and the IMF are ineffective. Secondly, the eurozone’s countries with strong economies are sick and tired of fighting for their losing neighbors and for the common European currency. The survey held in Germany by “Emnid” shows that 49% of the respondents are concerned about the destiny of Euro. Only 5% of them are confident about the currency.
The EU seems to be doing its best to save Euro. On Sep 6th Jose Manuel Barroso, President of the European Commission, made a speech at the international conference in Australia. He said: "I'm absolutely sure it [Euro] will survive…There is full commitment of all Europe-area countries to the financial stability in the eurozone and in fact the euro remains a very stable and strong currency."
Will Euro survive? What does the future have in store for investors when the recession is over?
Numerous respected analysts and experts say that the common currency is doomed:
Forecasts. Nouriel Roubini, who likes to make gloomy forecasts, anticipates the end of the common Euro currency. A month ago he published his article called “The End of Europe”.
Skeptical sentiments. Alan Greenspan, ex-Chairman of the US Federal Reserve (1987-2006) has always been skeptical about Euro, calling it an artificial product created to unite numerous countries with different cultures. In August he forecast the end of the currency (in will follow the destiny of the Soviet Ruble).
The end of Euro. In early 2011 Warren Buffet called Euro unviable as the very idea of creating a common European currency was absurd.
Bankers’ opinions. In May 2011 Thomas Mayer, Chief Economist of Deutsche Bank, expressed his opinion on the matter, saying that that the collapse of Euro is possible if the ECB and the eurozone authorities don’t change their policies.
The experts of remind you that earlier this year Bloomberg interviewed 1000 analysts, investors and traders on the destiny of Euro. 25% of the respondents expressed confidence in the currency, 59% said that at least one member would leave the eurozone within 5 years, 11% said it would happen until the end of 2011.
Europe is struggling: EUR prospects
According to , the biggest mistake is to hope that the eurozone members will agree to expel risky and problematic members from the currency union. And it is not about the fact that the eurozone regulation does not consider such cases. For the European Union, which is planning to include new members in the eurozone, Euro is the symbol of a united Europe.
Any withdrawal from the eurozone (voluntary or forced) means death for such a state: A return to the national currency will destroy the country’s financial system because 95% of the eurozone states’ debts are denominated in Euro (only 5% of them are in US Dollars). The national currency will be severely devalued, thus increasing the debt pressure.
The existence of the common currency is beneficial for the eurozone’s strong economies like Germany because they are export-oriented. Without Euro Germany’s national currency would be strong, thus affecting the country’s export by making products less competitive.
The banks of the eurozone’s stronger countries are the main holders of the T-bonds issued by Greece, Ireland and Portugal . That is why a default of any of the debt-ridden eurozone economies will cause severe damage to Europe’s major banks.
The experts of FOREX-TREND assume that in order to save the eurozone and its currency the EU authorities need to do the following:
· To give the European Commission more rights in order to consolidate the coordinated efforts on the macroeconomic level.
· To restrain borrowing through legislation.
· To issue Euro bonds in order to lower the lending costs for the eurozone’s weaker members and to improve the union’s financial discipline and responsibility.
Euro: more than just a currency
Jacques Delors, ex- President of the European Commission (1985-1995), admits that the common currency is currently unstable. However, he is sure that it is possible to save the day though deepening the economic integration and cooperation between the eurozone members.
The current standing of the EU locomotives - Germany and France – proves that Europe will be fighting for the common currency till the end (let’s hope they will win). The authorities are optimistic about the prospects of their currency:
Both Jose Manuel Barroso and Angela Merkel admit that there were some mistakes made during the introduction of Euro. However these mistakes are being fixed. That is why they believe that Euro will survive the crisis and will become even stronger.
In May 2010 Angela Merkel said: “If the euro collapses, Europe collapses”. This statement turned into a slogan, which is frequently used by most EU leaders.
Moreover, the common European currency is not just a currency. It is a part of big-scale political games.
Finally, what is a downtrend of Euro? It is a loss for a currency trader or investor but it is not the end of the currency.
’s experts point out an interesting idea expressed by M.Deljagin, who assumes that a weak Euro is good for European manufacturers. May be the EU authorities keep talking about the eurozone crisis in order to prevent it from strengthening until the global economy eventually starts recovering.
According to the Department of Masterforex-V trading system , at this point the EUR index is being traded in a price range of Daily2. The direction in which the price comes out of the range will determine the future succession of events. A break below the bottom will indicate a downswing - wave A of Weekly/Monthly. If the price breaks above the top of the range, it will form a FZR of Daily2 within the framework of an upward retracement.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Will the eurozone and its currency eventually survive?
Vlad Demochko
