The Euro is the currency of 19 countries in the European Union (23 altogether outside of EU). The Maastricht Treaty (1993) was the legally binding instrument to bring the Euro to life. Its aim to bring the EU in to a closer economic and monetary union. Sounds like a superstate right?
The two major opponents to this were the United Kingdom and Denmark. Currently out of these two the Pound Sterling is still independent to the Euro. The Danish Krone has a fixed exchange rate policy with the Euro. It is understandable having a unified currency is a decent move towards a closer economic community.
However, is it still a decent move, or has it been an instrument in the demise of the EU? According to the European Commission it ‘is one of the European Union’s crowning achievements’. Well…
The European member states who operate the Euro as a currency come under the Eurozone. It is currently headed by Mário Centeno, the Finance Minister of Portugal. This is an important positive note for the Euro (there aren’t many). Portugal and its Finance Minister have a proven track record for a positive growth in their own economy. There has been a yearly Gross Domestic Produce (GDP) increase of 1.5% recorded in 2015, after the 2011 bail out from the EU.
Cooks and Broth?
The Euro means there is one currency operated through a central bank, controlled by the member states of the currency. The immediate issue here is, there are too many cooks with a very spoilt broth. With a central bank, nations are having their independence further stripped by disallowing themselves to ultimately control their own economies. This can be seen from the many bailouts by EU to its member states who have encountered economic disasters. There could have been other methods used to allow such a nation to try and recover its own economy.
An example of this is allowing such nation to control its own exchange rates. Individual (I was about to type independent) member states cannot devalue their currency with lowering exchange rates to allow for an influx of foreign trade. So, foreign trade would eventually help an economically downtrodden nation to better its economy.
Can’t pay? We’ll give you it anyway.
As the Euro is influenced by approximately 23 countries, it makes it extremely susceptible to devaluation and uncertainty. Comparing this to the Pound Sterling, managed solely by the UK, reflecting the economy of only four nations. The Eurozone crisis of 2009 was a time where Greece was in danger of defaulting on its debt repayment. This threatened a debt crisis to spread to Portugal, Spain, Italy and other large EU nations.
Furthermore, it must be noted 11 nations of the EU contribute to on 1% of the total EU GDP. Comparing this to nations such as Germany and the UK who contribute 21.1% and 16.0% respectively. Greece contributes a mere 1.6%, but the 2009 crisis could have meant Italy (contributing 11.3% to EU GDP) having an economic meltdown. This is all due to the shared currency of the Euro. Is it worth the risk?
UK’s lucky escape?
It is fortunate to say the UK made a right choice in not joining the Eurozone and adopting the Euro as its currency. Throughout the history of the Euro, the exchange rate between it and the Pound Sterling has never been higher than 0.95, and that happened once in 2008. The Pound has constantly been more valuable than the Euro, with examples of it being as low as 0.58 (wouldn’t get you many sangrias) . A nation like Germany, which has a far stronger economy than the UK, is tied down by the handcuffs of the European Central Bank, never having the chance to have a currency stronger than the UK.
Anyhoo, Happy Birthday!
So, 20 years on from the birth of the Euro, it has had its rowdy early teens, rebellious adolescence and now it seems to be facing new challenges in its adult life. With the UK exiting the EU, and various Eurozone nations considering the same – the Euro has the worst yet to come. Happy Birthday Euro!