There are now 19 EU countries in the Eurozone (EZ). The size of its economy grew by 72 percent to €11.2 trillion ($12.8 trillion) as of 2017, second only to the US and just ahead of China (which may overtake it shortly). The euro is used by 340 million Europeans; 60 other countries have currencies linked to the euro.1
Has it been successful?
Top European leaders think so. ECB President Mario Draghi stated, “after 20 years, there is now a generation who knows no other domestic currency." And European Commission President Juncker avowed “the euro has become a symbol of unity, sovereignty and stability. It has delivered prosperity and protection to our citizens.”2
EU finance and trade officials think so. Surveys indicate that the euro has contributed to stable prices, lower transaction costs and increased trade throughout the Eurozone and beyond.3
Citizens within the Eurozone think so. When asked if the euro had been good or bad for their country, 64 percent of member state citizens said it has been good, up from 51 percent in 2002, according to Eurobarometer’s annual pan-European poll.4
Has the euro been overly volatile?
The euro was launched at $1.1743 against the dollar. It dropped to a low of $0.8287 in 2000, then climbed steadily, peaking at $1.5938 in 2008. This range of 44 percent is well in line with the ranges of GBP/USD, USD/JPY, and USD/CAD over the same time period, so it has not been overly volatile. Currently, the euro trades near $1.1360, only 3.2 percent away from its launch rate 20 years ago.5 I consider that quite an achievement.
Which countries benefited the most/least?
The big winner was Germany. Germany had to give up its beloved deutsche mark, but for the EZ’s biggest exporter, the euro has been a boon, allowing its products to be priced in a cheaper currency. And, with fixed income rates lower in Germany, German companies have been able to borrow more cheaply.
A so-so winner was Ireland. Irish borrowers gained from lower interest rates set by the ECB, and while that fueled a real estate bubble that went bust, the euro has enabled Ireland to be highly competitive within the EZ, attracting a more productive labor force, while keeping labor costs under control.
Losers. Before the birth of the euro, France, Italy and Spain were able to respond to economic crises by lowering the value of their currencies, and the euro took that privilege away. Reluctant to give up their economic identities, France, Italy and Spain have had trouble integrating into the EZ, and their economic growth has suffered.
Big hurdles going forward: anti-globalization, populism and nationalism
- Optimists say that the near-death experience of the euro in recent years will spur the kind of integration necessary to stabilize the euro-zone for the long term.6
- Pessimists say the gulf between the economic performances of the strong economies such as Germany and the Netherlands and the weak economies of Greece and Italy is destined to lead to an existential crisis in the euro.7
- Indeed, over the last year, we have seen social unrest, political upheaval and unpredictable change in Europe, which is certainly precarious for the future of the euro, as well as the EU.
- The impact of the EU Parliamentary elections in May could offer clues to the euro's future. We'll be watching.
Sources:
1, 2, 3, 4 Europa.eu
5 Bloomberg
6,7 The Independent, UK
The views expressed in this article are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates. This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable but which has not been independently verified by us, and, as such, we do not represent the information is accurate or complete. The information should not be viewed as tax, accounting, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment, or to engage in any other transaction.
Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal, accounting and other advisors and only make investment decisions on the basis of your own objectives, experience and resources.
All non-SVB named companies listed throughout this document, as represented with the various statistical, thoughts, analysis and insights shared in this document, are independent third parties and are not affiliated with SVB Financial Group.
The views expressed in this article are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.
This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable but which has not been independently verified by us, and, as such, we do not represent the information is accurate or complete. The information should not be viewed as tax, accounting, investment, legal or other advice, nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment, or to engage in any other transaction.
Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal, accounting and other advisors and only make investment decisions on the basis of your own objectives, experience and resources.
All non-SVB named companies listed throughout this document, as represented with the various statistical, thoughts, analysis and insights shared in this document, are independent third parties and are not affiliated with SVB Financial Group.