As you read this, speculation is rife over whether or not Greece is about to become the first victim of the eurozone crisis, with no option but to leave the single currency. Results of the country’s recent general election show evidence of an angry public, defiant against austerity measures enforced by the European Central Bank to help the nation make attempts to repay their sizeable debts, with significant consequences for the troubled workforce. Should these measures not receive backing, there is fear that Greece will default on its debts and leave the eurozone for good.
These developments fall on the 10th anniversary of the single currency’s entry into circulation – making the next few months an even more poignant period for the currency. The concept of a single currency for a bloc of different nations with varying economic strengths and political landscapes has always had its doubters, particularly in the UK, and the worry is they could soon be proved right. With all this in mind, let’s take a brief look back at the first ten years of Europe’s single currency.
Since its introduction in 2002, the euro has been through peaks and troughs like any currency; however, today’s situation is more than just another blip in its otherwise steady life. The introduction of the single currency was seen as a great moment in a generation’s long effort to bring peace, democracy and shared prosperity to a once frequently war-torn continent. From the outset, critics have argued that the architects of the currency were swept up in the romance of the notion and thus chose to ignore the very obvious difficulties a shared currency would encounter. Warnings were issued from the beginning that Europe lacked the necessary institutions to make a common currency workable.
Sceptics were silenced when the original 11 nations were quick to replace their own national currencies and adopt the euro. The Deutsche mark, for instance, was expected to continue in parallel for quite some time; instead it practically vanished as soon as the markets opened. Despite the initial slump, things gradually improved for the euro year-on-year with it reaching its highest value against the dollar at $1.59 on July 14th 2008 and against the pound at 97.73p on December 31st 2008.
Once born, the euro steadily grew in importance with its share of foreign exchange reserves rising from nearly 18 percent in 1999 to 25 per cent in 2003. By the late 2000s some people were beginning to believe that it was perfectly conceivable that the euro could trade equally, or become more important than the US dollar.
Just as it seemed that things were on the up, the global financial crisis reared its ugly head and the eurozone entered its first official recession in the third quarter of 2008. None of us are strangers to the monumental impact that was felt across the globe. This was the first time that the existence of the euro came into question as troubled nations began discussing a return to individual currencies, and whether in fact this backward step was a realistic option.
As well as its many positives, the euro brought with it significant increases in living costs in all acceding nations. Overnight costs of fuel, rent, transport and food reached unprecedented levels in some countries, for example Cyprus. Teamed with the financial crisis, these increases bred nothing but resentment.
Despite only representing two percent of Europe’s total economy, Greece’s inability to pay its debts presents some risk to the stability of the currency. Across Spain, the general consensus throughout the population seems to be that they would like to abandon the use of the euro entirely, having suffered nothing but losses from the outset. As Germany struggles to control its workforce and France announces the election of François Hollande, a Socialist dubbed “economically illiterate” by many, it should come as no surprise that the stability of the currency is coming under increasing scrutiny.
With so much uncertainty, the debate on how the euro will come out of the current economic storm – and whether it was even a good idea in the first place – is commonplace around café tables across the Continent. Was it naïve to believe that having one central bank for so many diverse nations could actually be successful? As we ‘celebrate’ the first 10 years of the euro, you have to wonder what the next 10 years, let alone 10 months, have in store for it.
Charles Purdy is MD at Smart Currency Exchange
