Pigs, Dommino, and The Euro's Decline

The Euro certainly had a bad run lately, with the European currency falling to a months’ low against the USD and some other currencies.

The main culprit is Greece, one of the weaker members of the Eurozone, whose fiscal management practices can only be termed as scandalous. The serious threat that Greece will default on its loans has sent shockwaves through the Forex market and world financial arenas. It’s amazing to see this happening considering that there was talk of the Euro replacing the US dollar as the world’s major currency. This doesn’t seem likely at the moment.

Greece may be the first warning sign, but it is hardly the only ones. There are 4 members of the Eurozone are showing signs of fiscal problems. These are mainly Portugal, Ireland,Greece, and Spain. Combine them all and you get “Pigs”, not the best acronym for this time but certainly one with a dose of wry humor in it.

Ireland who looked like an economic miracle until 3-4 years ago now seems like a disaster waiting to happen, Portugal with similar problems as Greece, and Spain with close to 20% unemployment rate! We’re talking about developed countries here, not 3rd world nations.

The fear is that Greece is the first but certainly not the last. A domino effect may indeed come to be if it is seen that some Euro nation is defaulting on its loans. All this has sent the Euro spiraling down.

However, yesterday, the Euro rebounded amidst speculation that there will be some form of combined effort to bail out Greece. The coming meeting of the European leaders, which is to be held this Thursday, is supposed to include a reference to Greece and how the Eurozone is going to be  dealing with this crisis.

In addition, news that European Central Bank’s president Jean-Claude Trichet will also attend this leaders’ meeting in Belgium boosted hopes that there will be positive news regarding Greece.

I have no doubt that there will be a collective effort to help Greece out. The question is how long will this help the Euro and what will happen if another country seems on the verge of defaulting on its loans. There is always a limit to what can be done and the amount of money that can be spent. Bear in mind that public opinion in the stronger and stabler of the Eurozone members may not approve of too much spending to help Greece or any other country. In that sense the EU has remained a coalition of nations, but not a true union.