Earlier this year I made a prediction for the Euro in 2010, in which I estimated that the Euro is heading for a bad year. Despite the turbulent way in which the value of the Euro shifted back and forth, it’s quite clear that the European currency is on shaky ground and the future looks bleak.
A lot of people are now wondering aloud whether the Euro will even survive or will the Eurozone members, 16 so far, will revert back to their national currencies.
To all those people who eagerly anticipate the collapse of the joint european currency, I can only say that you shouldn’t hold your breath. While the Euro may be on shaky ground, I don’t see it disappearing. Switching back to national currencies will cost a lot of money. Only nations who feel that they’re in desperate need of their own currency will contemplate such a move.
In addition, such a move will have political repercussions. The other Euro nations will not like having their union disrupted. The countries, and especially the first one, that will contemplate such a move, will face immense pressure not to go ahead with their threats.
That being said, the mood in Europe does seem to favor some big blowup of the Euro. The weaker nations are pressured by the stronger nations to take all sorts of austerity measures they don’t really want to take. The goal is to preserve the Euro and to eliminate the prospect of an additional bailout of a European country as happened with Greece and Ireland earlier this year.
The problem is that the politicians in Spain and Portugal, two of the Eurozone’s weaker countries, are facing a lot of internal heat for their austerity plans. The citizens in these countries don’t like to see foreign interests influence their own welfare and politics. This leads to greater dissatisfaction with the European Union and rising national setiments. This spells trouble for the Euro.
The problem is that the strong euro-countries such as Germany, France, the Netherlands, favor one sort of Euro policy while the weaker ones, Spain, Italy, Portugal, Greece, will benefits from a totally opposite one. These are two forces which are tearing the Euro apart.
What may happen, and I stress may, is that the Eurozone will contract, rather than totally disappear. The weaker nations, eager for a weaker currency to make them more appealing for foreign investments will retire from the Eurozone and return to their national currencies, while the stronger nations remain with the Euro.
Is this likely to happen? Some will say it’s a certainty while others will say it’s unrealistic. What is positive is that it won’t happen suddenly or too soon. The desire to keep the Euro intact is strong. It will be interesting to see how it fares in 2011.
