Decade of the Euro

The euro has been used in financial markets since 1999, but it wasn’t until January 1st, 2002, that the currency was officially circulated in 12 eurozone member countries in the form of notes and coins. By mid 2011, more than 870 billion euro was in circulation in 17 eurozone countries populated by more than 330 million people. The euro was intended to provide a unified currency with a stable value in a unified Europe. Before the financial crisis of 2008, the euro was considered a reasonable success as it had helped European businesses reduce currency related expenses and consumers benefited from stable prices, although some people felt the euro contributed to inflation. For several years, the European Central Bank managed to hold regional inflation to 2% annually. The euro became one of the world’s major currencies and a visible symbol for the unity of the region. But, even before the 10th anniversary of the euro, newspapers were talking about the imminent collapse of the euro and its disastrous consequences. 14 out of 20 economists interviewed by Reuters in late November said the euro could not continue as before and many financial institutions are preparing for the worst. Europeans meanwhile are worried about escalating prices, rising unemployment rate, decreased social welfare and declining living standards as a result of the spreading public debt crisis.  There were many causes of this dire situation, but the main one was a low euro interest rate which encouraged many states and individuals in the eurozone to borrow and overspend. Meanwhile, the European Union had no political and budget guidelines for its members. As a result, Greece, Ireland and Portugal ended up begging for international assistance to pay overdue debts. Last year, the crisis spread when Italy and Spain announced they were in serious trouble and France was threatened with the loss of its AAA credit rating. Streets in Europe filled with demonstrations and strikes protesting unemployment and budget cut and the political whirlwind blew away the governments of Greek Prime Minister George Papandreou and Italian Prime Minister Silvio Berlusconi. The Prime Ministers of Ireland, Spain and Portugal were also forced to step down. The crisis had caused a split within the European Union over how to deal with the debts. The European Union has held a series of emergency conferences to save the euro and austerity plans have been put in place. But, international financial markets and the public still feel unconfident about the euro. After ten years, the most visible symbol of Europe’s integration, has now become the symbol of a public debt crisis and economic recession. Support for this currency is steadily declining. According to a poll in November by the Ipsos Institute, part of the global market company, 45% of French people say the euro has contributed to the crisis and 85% of the Germans agree that the euro is stoking inflation. A recent survey in Spain showed that 70% of Spanish people say the euro has brought little benefit. With the euro severely weakened, Europeans are learning a hard lesson about uncontrolled budget deficits.

Doan Trung