06 June 2010

The future of the Euro and the Eurozone?

Never a dull moment these days in the Eurozone. It’s so difficult advising people which currency to convert and when and for how long and which currency is the safest etc. Its looks like the Euro maybe heading for parity with the US Dollar. Let’s just hope that the GBP will maintain its value. I know there are many ‘smug’ people in the UK right now saying ‘We told you so”, about the Euro and how happy they are that we (The UK) did not enter the Eurozone. I found the article below from the EU Observer to be very interesting. Why? because it was an interview that took place in May 2004.

Milton Friedman, the Nobel-Prize winning US economist and one of the most influential economists of the 20th Century believes there is a "strong possibility" that the euro zone could collapse "in the next few years".
In an exclusive interview with the EUobserver, Professor Friedman argues, "there is a strong possibility that the euro zone could collapse in the next few years because differences are accumulating between countries ... I'm not saying it is a certainty, just that it is a strong possibility".
He suggests that the euro could be replaced with the old national currencies.
New member states, new problems
His main concern with the workings of the euro zone is that it is difficult to have an economic union between countries that have substantially different economies, cultures and languages.
He believes that these problems are set to mount with the entry of the ten new member states.
Although he concedes that "actually I think that the euro has been doing quite well so far", he says that "there are problems facing it especially when you consider that you have the ten new countries in the EU".
The new countries are legally obliged to join the single currency and four of them (Cyprus, Estonia, Lithuania and Slovenia) have indicated that they intend to join it as soon as possible.
Professor Friedman believes that "there are certainly different problems for different countries" but advises, "If they are going to join, the sooner the better".
EU's economic goals are "a nice dream"
Professor Friedman, who played a pivotal role in shaping the US economy in the latter half of the 20th century, is not optimistic about the EU's chances of fulfilling its self-imposed economic goals known as the Lisbon Agenda.
He said, "No I do not think that the EU can catch up with the US by 2010. It is a nice dream, a good hope and I wish them well, the world would benefit".
"But I think the chances of achieving it are very slim. The rest of the world is not going to stand still. India is not going to stand still, China is not going to stand still and the US is not going to stand still".
Furthermore, he believes that the EU - and even the US - will eventually be caught up by the rapidly growing economy of China.
"It is almost certain that, at the current rate of growth, China will overtake both the EU and the US. But this is quite a long time down the road".
Stop strangling your economies
But the Professor, who was awarded the Nobel Memorial Prize for economic science in 1976, has plenty of advice for the EU.
"There is no doubt what the EU should do. Abolish your rules and regulations. Abolish your [high level of] spending. The European economy is too burdened with rules and regulations".
"There is nothing wrong with the basic strength of the individual countries. But they have burdened themselves with a range of rules that strangle their economies".

Maybe we should be listing more carefully to Milton Friedman forecasts.

Back to June 2010

The President of the Czech Republic, has also been vocal this week. See below:
Václav Klaus, president of the Czech Republic, has never been too worried about upsetting his European Union partners. He risks doing so again with a piece just written for the libertarian Cato Institute’s Center for Global Liberty & Prosperity provocatively entitled “When Will the Euro Zone Collapse?”
His main conclusions are twofold.
First, the euro zone has failed: It hasn’t delivered growth and the economies of member states have not converged. According to European Central Bank, average annual economic growth in the euro-zone countries was 3.4% in the 1970s, 2.4% in the 1980s and 2.2% in the 1990s. In the decade of the euro, from 2001 to 2009, it was just 1.1%.
“As a project that promised to be of considerable economic benefit to its members,” he says, “the euro zone has failed.”
His second conclusion is that, despite his provocative title, the euro zone will probably survive. “Of greater interest to non-experts and politicians (rather than economists) is the question of the collapse of the euro zone as an institution,” he says. “To that question, my answer is no, it will not collapse. So much political capital had been invested in the existence of the euro and its role as a ‘cement’ that binds the EU on its way to supra-nationality that in the foreseeable future the euro zone will surely not be abandoned.”
However, the price will be low growth for those inside the euro zone and costs for some, like the Czech Republic, outside. “To summarize, the European monetary union is not at risk of being abolished. The price of maintaining it will, however, continue to grow.”

If anyone out there REALLY knows the future of the Euro and the Eurozone, please do not hesitate to get in contact and let me know as soon as possible.

This time last year we were sharing jokes about what is a ‘safe bank’?
But I still consider the following to be safe bets. HSBC, Barclays and The Bank of Cyprus. But now that I have gone ahead and said this, I am sure things will change.

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