Euro Currency Survive?

What are your thoughts on whether or not the Euro currency will survive and why? Volcker believes it will survive however Friedmen, Soros and numerous others believe that the currency will ultimately break up. Several European countries, such as France, have announced that they will support greece and not allow it to fail and steps are in place to limit speculation on CDS’s and other derivative products. However, these could be short lived remedies, especially if a much larger member, such as Spain, was in need of financial support. is it possible for a successful economic union under one currency without political union? Your thoughts would be appreciated.

the euro should survive unless a significant portion of the constituents value deviates by such a large degree that would force an absolute breakup. But not to the degree of something like Greece, something to the extent of germany, france, italy or spain. But I would take a gross guess that an event of some magnitude, ie implode within that countries economy and be isolated from the other euro economies. I can’t think of something along those lines unless maybe a civil war, and that just doesn’t seem plausible. With the absence of hard data, I think the economies are intertwined enough to prevent a completely isolated incidence of complete meltdown. The only other way would be something completely political, ie a deviant government. But since wwII there really hasn’t been geo-political actions or aspirations of any that i’ve read within western europe. Eastern europe a different story.

Can anyone think of any reasons why the EURO will survive? I have done some research and I all I can find are reasons why the Euro will not survive. Is it in Europes best interest to remain united under a common currency in order to collectively compete with the US and Emerging economies in Asia such as China and India?

Well one reason it will probably survive is that it is massively difficult for any country to leave the eurozone. There is no legal basis for doing so. That country would then have to recreate all its old institutions that supported its old currency. It’s foreign debts would have to get revalued in the new currency which would cause a lot of headaches. Besides, countries on the periphery of Europe that were not in the euro have generally suffered more severe crises than those within the bloc. Think Iceland, Hungary and the Baltic states. Most of those countries now want to join the euro. Also, leaving economics aside (as ultimately economics matters for perhaps 10% of the decision on whether or not to join/leave the euro) politically it is very popular. People like not having to change money when they go abroad. Also it brings Europe closer together after centuries of war and turmoil. Generally it has a positive social influence I think. Fiscal rules will get tightened in the future I’m sure so this kind of situation does not repeat. Generally, political union will increase and I expect the eurozone to ccontinue to hoovver up surrounding countries. The model here I think is the UK. Four different countries combined under one currency with some regional autonomy retained for political and fiscal issues and full automony retained for cultural issues. I don’t think any Scots feel less Scottish for having the pound as their currency. Nor should a French person feel less French for being in the eurozone. It’s the political and fiscal integration that’s the tricky bit!

Thanks for your response Carson. You brought up an interesting bought regarding the common currency for the UK. Have the four governments ever ran into any problems managing their fiscal policy without having full control over monetray policy?

Maybe someone from the UK can answer that for sure, but I doubt it. As I understand it the regional governments in Wales, Northern Ireland and Scotland have limited budgetary control over some local matters, but ultimately the buck stops in Westminster. I think the Spanish regions actually have more fiscal independence even though they are not generally recognised as independent countries. I believe the UK works as a template because Welsh, Scottish, English and Irish people still keep their traditions and customs very much alive even though their fiscal policy is largely shared and they use a common currency. It seems to me that this ought to be the goal for the eurozone. I do believe strongly though that politics will play a much larger roll in deciding whether countries join or exit the euro than economics. Many English people are fiercly determined to stay out of euroland regardless of any economic argument. Similarly, if you were to suggest they the pound should be broken down into four sub-currencies for economic reasons, they would be vehemently against. Brown and Blair wanted to join the euro 10 years ago remember, but it was politically impossible to manoeuvre. As an aside, Estonia has come out today I see looking to join the euro from 2011. Slovakia joined last year. I think the currency zone will continue to expand into eastern europe and eventually even to stubborn western states like Iceland, Denmark and the UK.