The future of euro exchange rate should be saved

The exchange rate euro remains a problem

In brief: The future of euro looks rather bleak against the threat of defaults in the euro area and the mass panic of investors on the currency market.

The exchange rate euro and the euro becomes a major issue for European officials. Integration of former enemies and the establishment of the single currency has become the biggest political achievement of Europe. Today, the ties that bind members of the European Union, are the most serious test for all of its existence. While there is no reason to believe that the euro is on the verge of extinction. But without good governance can not halt the process, depriving the common currency of political support.

European Monetary Union has always been and remains not only political but also economic project. If the euro is something threatening, the reason is not the economy, not a sovereign default and not to reduce interest rates. Euro managed to strengthen the single market by eliminating such things as the volatility and competitive devaluation. Above the single currency looming political threat, but it is largely embellished Euro-pessimists. Powerful forces hold the euro area from collapse: to exclude the country from the Union is not possible, the political leaders remain committed to stay together and in any case, the output of the euro area – very expensive. Nevertheless, the euro suffers from serious stress. If the euro-zone leaders want the single currency continued to exist, they must come to new political arrangements to replace the old, which made possible its emergence into the light. Germany renounced the German mark, provided that the other European countries will follow the German discipline. To ensure compliance with these agreements were to be: independent, ECB, aimed at maintaining low inflation, the Pact on Stability and Growth Pact provides financial prudence, and a ban on financial assistance. Of the three pillars of the continued existence of only the first. Although even the independence of the European Central Bank has already in doubt.

Germany and France managed to evade the punitive measures imposed by the pact. The governments simply can not lift his hand to one of their own. The right time to impose restrictions hopelessly lost. Excessive government borrowing is not the only cause of the debt crisis. Spain is also in distress, despite the surplus in the country before the crisis and lower public debt than in Greece. However, an unsuccessful attempt to introduce the German discipline forced the country delayed the reforms necessary for sustainable growth in the closet. To facilitate the process of change would be through the active movement of capital within the European continent, but, instead, the funds were used to finance a consumer boom, and investment had gone nowhere. While the boom lasted, the rules, obviously, could be violated with impunity. Now the collective support of southern Europe with a high degree of probability is regarded as a gradual shift towards an alliance of financial assistance, where thrifty to pay for wasteful. The situation is heating up statements by the leaders that defaults in the eurozone simply unacceptable. The Treaty on the prohibition of financial assistance to become a treaty on the prevention of default, and now German taxpayers feel that they have left in the cold. To monetary union is not broke, you need to develop a new political agreement. It requires skillful management of public affairs, but none of the European leaders so far can not boast of such skills. Managing in a crisis marked by indecision, and understanding of its causes is simply absent. Domestic opposition to the intervention of the IMF prevented decisive action against Greece. Some European leaders say that a default in Greece will lead to recurrence of the situation with Lehman. The analogy with the well-known bank suggests itself: too much leverage, opacity, flow of finance and the risk of the epidemic – symptoms that are characteristic for both cases. But in this case the cure for this disease will also be a resolution to Greece and other countries with similar problems. Germany’s finance minister, Wolfgang Schauble suggested beforehand to prepare for the default of Greece. First we need to lay the groundwork for a coherent structural reform if the IMF program fail. If the liquidity of 750 billion euros will be implemented automatically in case of panic in the market, most likely a default will not cause a chain reaction. In addition, in the case of the epidemic more than anyone to suffer the private financial sector, in particular, German and French banks, governments that prefer to save them, helping to Greece.

Re-recognition of States’ mistakes in the conduct of budget does not weaken the political unity of the euro area. Rather, it is still more united Europe, and thereby prove that monetary union is not a disguised transfer-Union, which lacks legitimacy. Also necessary to adopt a new pact on the growth and stability. It should be much zhesche than the current one. Violators of the law will be denied financial assistance from the EU, and also temporarily banned the use of the right to vote on matters relating to the euro area. However, strong laws should guarantee the financial integrity. Deficits are more stable at the beginning of the cycle, when growth in the country ahead of the pace of education of public debt. The growth – a necessary condition on the path to stability, a factor that must not be forgotten. If you push the country to the depreciation of the debt can be achieved only destabilize the political situation, but does not improve the state of the economy. Thus, countries with a budget surplus should make a contribution. Expenses exceeding income can start the recovery process. The financial savings must be accompanied by other measures aimed at stimulating private demand. In the future pace of economic growth in Europe should grow by increasing productivity. However, neither monetary nor fiscal policy will not bring the desired effect. Such prospects will occur only after a stringent structural reforms, which have for a long time in Europe avoided. Despite concern about the euro, the most important achievement for Europe remains stable single currency, and the dynamism of the real economy. If the euro area can not agree, the country will continue to act in their interests to avoid stagnation. Governments will push inflationary policies at the national level or through the European Monetary Union, that in any case would have a negative impact on the independence of the ECB. If the situation will evolve in this direction, the fate of the Euro will be in the balance. To avoid his death – overriding objective leaders in the Eurozone.

Ukrainian Globalist
2010-06-10 00:23, Currency news.

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2 comments к “The future of euro exchange rate should be saved”

  1. Larysa Holden Says:

    Hi, I have a question and hope you can help. Can I change Ukrainian currency Hryvnia – I have 500 I accidentally brought home – for Euros in Germany – where I will be next month – and where can I do this – ie at a bank??

    Your assistance is much appreciated – thanks Larysa

  2. eng-admin Says:

    Greetings, Larysa Holden. I am afraid, that hrivnya is a currency of internal cuirculation, and officialy that is hard to do. I suggest to ask bus drivers of international routes – they can change privately. That is only option, I suppose.

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