Why is this title named as “Euro to Zero“?. It is not just fancy statement to lure the readers to look what I am writing about. The reality show happening in the entire euro zone is teaching us the big lesson. Every country must learn from Greece, about the seriousness of government fiscal deficit and how it will become disastrous if they are not controlling the budget deficit. This article explains the details inside euro zone and how it will impact the value of euro currency. Also I will talk about the future of Euro currency. I hope you will enjoy this article. If you like the article, please subscribe to our future articles here.
What is Euro?
Euro is the currency used by the European Union (EU) countries from 1st January, 1999. This currency is adopted by the 16 countries in the 27 members European Union (EU). The list of countries using the Euro currency are as follows: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
When all the countries are signing up the agreement to adopt the Euro currency, they had the common thumb rule of not having the govt. budget deficit not more than the 3% of the Gross Domestic Product(GDP). How the countries like Greece is join the group is the bad story of How the infamous banks like Goldman Sacs sink the countries with poor advice. (I personally hate this bank because where ever there is crisis, Goldman Sacs is part of that).
Who are in trouble?
In the previous section I have explained the basic condition to join the Euro currency for EU countries. Few of the countries don’t have the eligibility as indicated, but somehow they want to join the group. Note that UK and few other countries not joined in the group and they are using their own currency. The countries who joined Euro without good GDP growth are failing now. The list of countries are : Greece, Portuguese, Spain, Italy, Hungary. The problem with these countries are spreading to other countries. It looks entire euro zone will be put into the deep trouble. (It seems none of the countries will learn from their mistakes. They have to pay the price for their ignorance.).
What is Fiscal Deficit?
In this section we will look into details of how these countries entered into the financial crisis. In order to maintain a health economy for a country, the fiscal deficit for the country should be in the control. Fiscal Deficit means the country borrowing money from other countries or banks to solve their financial problems . It is good when their GDP growth is good. It will help them to repay the debt easily. But, when there is a situation of only expenses without adequate income for a country, it’s dept will be increased and some point of time it can not be manageable. The Europe countries are in the same situation.
The following are the list of countries with budget deficit as on 2009:
Now we will talk about the problem with the euro currency. The problems on the Europe countries are adversely affecting the euro currency. They value of this currency against all the major currency is galling very fast. The experts opinion is that maintain currency for all the countries won’t be good idea since every country has different financial condition. That is the real problem faced by the countries, they can not alter the value of euro currency without approval from all the countries in EU. For example, when a country is financial crisis, they can reduce their currency value and increase the value of exports. This what China is doing for the long time. That is the another story of tussle between US and China. We are not going to discuss about that here.
Since the countries can not manipulate their currency,they have the very less control on their own currency. It impacts on the exports and GDP growth.
Bailout Plan by EU and IMF
To resolve the problems, European Union(EU) and International Monetary Fund(IMF) come up with the $1 trillion bail out fund to help the affected nations. It is biggest bail out in the history. The money will be used to help all the countries in the Eu, if they fall it debt. The million dollar question is Will this aid will stop the falling nations?. Most of the economists and experts feel the financial aid to falling nations would worsen the situation by encouraging them to do more mistakes instead of giving them opportunity to solve the problem.
Note that, countries has to repay the bail out money given by EU and IMF with in three years. It clearly shows that the problem is just postponed, not solved.
Future of Euro
There are only three options to left out to save the future of euro:
- Strong economies like Germany, France, etc. should leave the euro currency.
- Troubling economies like Spain, Greece, etc. should move out of the euro currency.
- If the above two are not happening, then euro will be lost its values and one day it will be removed as the currency.
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I hope this article is worth reading to know the facts about the euro currency. If there is any problem in the Europe economy, it will surely affect the entire world. According to the data, PC makers get 38% of the profit from the Europe exports. The future indicates there is another possible mild recession on world economy. I have explained that as Double Dip Recession in my previous article. Pleas post your thoughts about this article in the comments section.
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