The crisis in Europe (Greece, Ireland, Portugal and other EU nations) pushed analysts and experts to seek the party guilty of the crisis. Analysts’ conclusions shocked Europe. A number of analysts said that the crisis was initiated other than by banks, financiers, industrialists or stockbrokers. The crisis was allegedly initiated by… the Euro, the European Union’s national currency. What arguments did the people that called the Euro the culprit have? What do such statements hold for owners of the Euro deposited in banks?
What are the arguments of the Euro’s opponents?
• If the afflicted countries (Greece and Ireland) hadn’t shifted to the European currency in due time they could have devalued their national monetary unit (like it was done, for example, by Great Britain) and survived the crisis with minimal losses. Athens might have had to ‘drop’ its drachma by about 40%, which would have saved Greek economy, however. But now it has to find a way out by using taxpayers’ money transferred from other countries of the currency union.
• During the economic boom of 2007 – early 2008 there were no restrictions on capital inflow from European countries that had a budget surplus (Germany, France) to such nations as Greece, Spain, Portugal, Ireland. This caused quite a dangerous misbalance that manifested itself during the crisis quickly enough.
• Introduction of the Euro made financiers dizzy in problem-stricken countries – they felt solid soil under their feet and started believing in their own power. This, in turn, resulted in unjustified increase of rates and a wider practice of cheap loans. As a consequence, a huge economic bubble soon burst with a bang.
• When the new Greek government recognized in 2009 that their country faced serious economic problems other countries of the Eurozone didn’t hurry to help them out at once. This surely affected trust of financial markets in Europe as a whole. Soon skepticism started spreading to other countries as well: Portugal, Spain, Italy and Ireland. Eventually investors started doubting whether the EU would have enough funds to bail out all nations above. Thus, the vast and heterogeneous nature of the Eurozone aroused mistrust of the Euro itself. Financial figures of the US or Japan used to cause much worse concerns than Greek ones. Nevertheless, neither the dollar nor the yen were subject to such criticism as the European currency circulated in as many as 16 countries.
What objections can be raised?
Experts of the Masterforex-V Trading Academy do not share pessimistic views of Euro skeptics. In fact, this situation of the single European currency doesn’t look so gloomy:
1. If Greece and Ireland hadn’t entered the Eurozone in due time they would have followed in the wake of Iceland – Europe’s first country that fell prey to the financial crisis. Of course, their national currencies could have been devalued to encourage exports. However, in economies that are far from being large, currency devaluation causes a spike of inflation and, as a result, loss of competitiveness. If the countries had been outside the Eurozone the outcomes would have been much worse: national currencies would have ultimately devalued, the central banks would soon have run out of foreign capital and there would have been nothing left to support their own banking system. However, being part of the Eurozone can alleviate their suffering quite a bit. The European Union has already assigned a staggering amount – 750 bn. Euros – to put out ‘financial fire’ similar to the Greek situation. Athens managed to get 110 bn. Euros to repay its foreign debt. What would Greece do if it weren’t a member of the currency union? One can hardly imagine.
2. Free capital movement between countries free of risks related to different foreign exchange rates has always been recognized as one of the Euro’s major advantages. This allowed these nations’ governments to attract investments in their own economies rather than save up currency reserves. This situation was very favorable for investors because Europe has a well-organized operation of financial markets. The trouble is that Greek and Irish governments succumbed to the overall trend (like, in fact, the US and Great Britain) and started investing in real estate markets thus driving the bubble even larger. Investors also were trapped by the common fallacy and didn’t resist such processes. However, the Euro has nothing to do with it.
3. Surely, the ‘dizziness from success’ caused by accession to the Eurozone affected both Greece and Ireland. But governments of these two countries didn’t have to wait till the situation turned absolutely sour or could use their own resources to remedy it, for example, by toughening financial policies, restricting bank loans, stopping capital stimulation through tax benefits. The Euro isn’t to blame that responsible officials in the affected countries made a host of mistakes and failed to take any timely rescue measures.
4. Today the European Union has learnt as many lessons as possible from these mistakes. Capital movement within the Eurozone is now toughly controlled as are financial policies of certain nations. A common stabilization fund worth 1 trillion Euro has been set up. A mechanism for financial mutual aid has been optimized. There are plans to create the European Monetary Fund which could guarantee repayment of national debt, monitor economic policies, control fiscal discipline and, when required, provide timely aid. Thus, the reputation of the European currency can be recovered very soon and, with it, trust will invariably return.
In general, one shouldn’t be too focused on apocalyptical forecasts expressed by many analysts regarding the future of the European currency. One should always remember that most Euro critics live outside the area of its circulation. The situation is painted in dark colors quite consciously and this is only an aspect of struggle between two global currency systems. Now all reasonable economists are perfectly aware that secession of countries with ‘ailing’ economies from the Eurozone will both finally ruin these nations and significantly damage the remaining ones.
What will be the Euro’s exchange rate?
As professional traders of the Faculty for Detailed Learning of the Masterforex-V Trading System point out the rise of the up-wave 1.1876-1.4281 has completed and currently there's evidently at least a correction to this wave and a move for Wave C or continuation of a more senior bearish (down) movement from wave 1.5200-1.1876 which has an obstacle at the level of MF Pivot (proprietary).
Experts of the Masterforex-V Academy in conjunction with Market Leader’s Editor’s Office hold a survey for more objective assessment. What do you think:
• The Euro’s introduction directly initiated the crisis in Greece and Ireland.
• The single currency has nothing to do with it. On the contrary, it is being used to help these two countries recover their economies sooner.
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