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July 18th 2005

Euro on the verge of dissolving?

After the French and Dutch rejection of the EU Constitution, many policy-makers have started to question the sensibility of a European economic union and the concomitant Euro currency. Lately many leaders have come forth and publicly criticized the Euro, blaming the currency for their respective economic woes. A new survey by two prominent HSBC economists asserts that a breakup of the Euro will become increasingly likely, if certain structural reforms are not implemented. The report goes on to argue that the nations that comprise the EU are too fundamentally different to warrant a common currency. The one-size-fits-all monetary policy has proved especially damaging, as interest rates cannot be adjusted in response to civerging regional economic conditions. The result is growing economic disparity. The economies of Germany and the Netherlands are languishing; meanwhile, bubbles are forming in regional property and asset markets, spurred by unnaturally low interest rates. Unless a miraculous economic turnaround is staged, it seems EU leaders may succumb to popular pressure and dissolve the Euro. The Guardian Unlimited reports:

It is worth remembering that there were huge legal and practical problems over creating the euro in the first place. But those were overcome. It would therefore be foolish to exclude the possibility that the euro may at some point lose members or even break up altogether.

Read More: Stop the euro – we may want to get off

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Posted by Adam Kritzer | in Euro, Politics & Policy | No Comments »

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