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Euro’s Uneasy Birthday Party

  • January 10th, 2012
  • Posted by EUEditor

eurosymbol-frankfurt3.jpgThe start of 2012 saw the commemoration of the first issue of Euro currency ten years before; an event hailed as cementing economic union, although, this year, accompanied by the persistent doubt over debt.

GREAT DAYS

Twelve countries were signed up to use the new currency when the  banknotes and coins went into circulation on New Year’s Day 2002:  Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

maastricht-treaty.jpgIt had all been agreed to under the terms of the 1992 Maastricht Treaty (picture, original document), for extending the range of the European Union, as a single market and monetary union.

Here was some sense of adventure; it was a vastly new phenomenon for the old continent which might have thought it had already seen everything humans might agree to do.

eu-symbol-coins.jpgThe European Commission lists conditions that Member States must meet to adopt the Euro, the so-called ‘convergence criteria’ that include low and stable inflation, exchange rate stability and “sound public finances”.

Five countries have joined since the start:  Slovenia, Cyprus, Malta, Slovakia and Estonia, bringing up a majority, 17 of the 23  countries of the EU.

Britain and Denmark took reservations early, to stay out indefinitely; the rest are still working to qualify through upgrading their fiscal and financial management performances.

MEETING THE EURO STANDARD

That meeting of standards has been at the core of the debt crisis which has descended on the European Union, governments now under pressure to steeply reduce public spending, to get to more sustainable levels and manageability, consistent with the other objectives on inflation and indebtedness.

High borrowing, and low growth or economic recession, have produced the crisis over public debt, governments hard pressed to pay their bills, or borrow at plausible rates.

This week the Italian government said it was continuing to have a struggle finding lenders who would buy bonds at a workable rate of interest, under 7%.

“NOT A EURO CRISIS, A DEBT CRISIS”

The German Finance Minister, Wolfgang Schaeuble, said that Italy and other states, including the small economies in most trouble throughout last year, Greece, Ireland and Portugal, needed to stick to tough savings plans.

That would be for the good of the whole of the EU, though he did not see the future of the currency itself under threat.

“This is not a Euro crisis, it is a debt crisis in some Euro states”, he said in a press interview.

The currency itself nevertheless has not been popular, this week trading at some of its lowest-ever levels: against the Australian dollar, €0.801, against the US dollar €0.785, (x.rates, 9.1.12).

DOUBTS FOR 2012; CELEBRATE FOR NOW

Economic indicators are not good for 2012 according to EC surveys and official statistics this week:  the December Economic Sentiment Indicator (ESI) slowed by 0.8 points in the whole EU and by 0.5 points in the Euro area, to 92.0 and 93.3.

Commentary was: “The overall decline in the EU resulted from weakening confidence in services, construction and among consumers, while sentiment improved in retail trade and remained broadly stable in industry. In the Euro area, a worsening of sentiment was observed in services, retail trade and among consumers, while confidence in industry and construction was broadly unchanged.” Unemployment levels remained above 10.5%.

Still, the achievement of the Euro was being cheered at commemorative events: even in Greece, where conditions of the recession have been extreme, and in the financial capital, Frankfurt, which saw them lighting up a giant Euro sign, in scenes reminiscent of the optimistic dawn of the currency, a decade ago.

See EUAustralia Online, “Europe, debt and 2012”, 27.12.11.

Reference

Alexandra Hudson, Steve Scherer, Vicky Buffery, Ruth Pitchford, “Crisis talk, austerity calls mark Euro anniversary”, reuters, London, 2.1.12. http://www.reuters.com/article/2012/01/02/us-eurozone-idUSTRE8000BY20120102, (9.1.12).

European Commission, Brussels:
“The Euro”.ec.europa.eu/economy_finance/euro/index_en.htm, (9.1.12).

“Economic Sentiment declines moderately in both the EU and the Euro area” -Business and consumer survey – December 2012. ec.europas.eu/economy_finance/ …, (9.1.12).

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