Eleventh year for the `euro' has
brought forth many challenges
to it as a single currency. Whatever seemed to be
euro-economies' strengths in the first decade are
now appearing as their weaknesses. Though the global financial crisis has
undoubtedly affected every economy, its effect on the eurozone economies is striking
because of the inherent economic divide among these economies. Most of
the eurozone economies, including Germany, France, Italy and
Spain, are officially in recession. Standard &
Poor's has downgraded the sovereign debts of Portugal, Italy, Ireland, Greece
and Spain (also known by the acronym PIGS). According to the data
released by the ECB, the eurozone's GDP shrank 1.5% in the fourth quarter
of 2008 and is expected to shrink at a similar rate in the first quarter of
2009 as well. IMF also forecasts euro-area GDP to decline by 2-3% in 2009
and barely recover in 2010.
Eroding competitiveness of the euro-economies, their rising current
account and budget deficits, falling GDP figures and increasing
unemployment rates are posing new challenges to
both the euro and its member countries. The European Commercial Bank
(ECB), which has the onus of protecting the confidence of its member countries, is
also in a somewhat impasse. Some of the weaker economies are in a fix
whether to continue in the union or quit it and pursue their own strategies to
protect their economies. In this backdrop, a few analysts have predicted that the
increasing strains on the eurozone may put pressure on the strength of the
euro and raise doubts about its long-term sustainability. |
