Euro news: The European Union is marking 20 years since the introduction of the euro
The euro was first launched on January 1, 1999 by the European Central Bank and is used daily by an estimated 340 million Europeans. Still popular today, recent surveys suggest three-quarters of people in the eurozone remain in favour of the euro, which has around €1.2trillion banknotes in circulation, surpassing the US dollar. But the common currency has not been without its criticism over the last two decades, with the euro battling through a global financial crash in 2008 and subsequently, the European debt crisis. In 2011 the crisis peaked, when five of the bloc’s countries – Italy, Greece, Spain, Ireland and Portugal – failed to generate enough growth, risking an economic default.
In October of that year, the then-head of the Bank of England Sir Mervyn King referred to it as “the most serious financial crisis at least since the 1930s, if not ever”.
Questions have often been raised about if the euro is indeed a failure or success.
It has mainly been southern European nations falling under the spotlight when measuring the longevity and triumph of the single currency, with Italy, Spain and Greece all having their ups and downs with the euro.
Perhaps the most high-profile nation to have almost crashed out of the eurozone is Greece.
When the euro was first launched it was often referred to as the ‘euro experiment’
Athens has been pulled from the brink of financial disaster with three bailouts over the last decade by the troika of the European Commission, European Central Bank and the International Monetary Fund.
The trio loaned Greece a total of £259billion (€289billion) in three successive rescue programmes in 2010, 2012 and 2015.
In what was the biggest bailout in global financial history, Athens only last summer finished completing the emergency loan programme.
In Spain, an economic recession began in 2008 with the burst of the housing bubble at the same time as the global financial crash.
Spain was in or near recession from 2009 to end of 2013 after the economy plunged into a downward spiral in the nation’s worst economic crisis in 50 years.
The recovery since has outpaced the rest of Europe, driven by stronger exports and rising domestic demand.
In terms of Italy, the crisis-hit nation has spent much of 2018 at loggerheads with European Union (EU) finance chiefs over its controversial budget.
The crisis-hit nation passed the 2019 budget just before a year-end deadline, averting a major showdown with Brussels after being accused of breaching spending commitments.
Italy prime minister Giuseppe Conte with European Commission president Jean-Claude Juncker
Italy re-drafted the budget and cut the deficit next year to 2.04 percent of gross domestic product after Brussels rejected its original target of 2.4 percent.
As the euro reaches its 20-year mark, Phil Hoey, editor of financial website Quotezone.co.uk, explained how these trio of nations could find themselves better off decoupled from the economic powerhouses within the eurozone.
Speaking to Express.co.uk, Mr Hoey detailed how the difference in sizes of economy make it hard to initiate adjustments to economic policies within the bloc.
He said: “When the euro was first launched it was often referred to as the ‘euro experiment’, a term that implied that it might not work, and even if it did work it wasn’t likely to be perfect. And it is fair to say that the euro is far from perfect.
“Firstly, it is not just a ‘single currency’ – it is also a single interest rate.
“That means the euro requires countries to hand over control of two key aspects of their monetary policy: the power to set their own interest rates, and the power to influence their exchange rates.
“This type of shared monetary policy might not be such a big deal if every country in the eurozone had a similar economy requiring similar tweaks and adjustments, but they don’t. Far from it, in fact.
“For example, exports account for a much smaller percentage of GDP in Greece, Spain, Portugal and Italy than they do in the Netherlands, Belgium, Luxembourg or Germany, while productivity rates are skewed in the same sort of way.
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“In theory that means Eurozone countries like Greece, Portugal, Italy and Spain might do better in the long run if their monetary policy was decoupled from that of the Eurozone’s economic powerhouses.”
But Mr Hoey maintained that the eurozone is unlikely to see any exits in the immediate future as the political upheaval would prove “deeply painful” for the nation leaving the single currency.
He said: “In the short term a ‘Grexit’, ‘Spexit’ or ‘Itexit’ could prove deeply painful for the country leaving the euro.
“It would mean the creation of a brand new, completely unproven currency that investors and even the country’s own citizens would be very wary of.
“In fact, it could be decades before a country is able to enjoy the benefits of their newfound economic independence.
“Given the fallout the process is likely to bring, then, the weakest eurozone countries might actually be inclined to move in the opposite direction in years to come – embracing ever-closer economic and fiscal union, instead of economic independence.”
Statistics from the European Central Bank (ECB) show Italy and Spain are the only two nations from the original group of 11 eurozone members which have seen their economies shrink since the currency was created.
Shaun Richards, an independent economist, echoed sentiments of scepticism for the euro and detailed how Greece and Italy in particular are now worse off compared to before they joined the single currency.
He told Express.co.uk: “The euro is now 20 years old and here is a factor that often gets ignored which is that in overall terms it is pretty much where it began.
“The trade weighted exchange rate is at 98.7 as opposed to the 100 at its start.
“This has been great for the exporters and manufacturers of Germany but much less so for the weaker economies of the euro area.
“For example Greece did well for a while but then fell into a great depression from which it will not recover for many years.
“Also if we look at Italy we see an economy where economic output per person is now lower than it was back in 1999.
“It was not supposed to be like this as the euro was supposed to provide economic convergence and reform.”
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James Hickman, CCO of FairFX said it is too most likely too late for countries to turn their backs on the euro now.
He said: “In hindsight I’m sure some countries regret the adoption of the euro, but I believe it’s a case of being too late to turn back now.
“The current 19 member countries using the euro are probably better off remaining with the euro, as changing currencies now could have huge economic repercussions including rocketing interest rates and currency devaluation.
“In the early years, countries such as Italy, Spain and Greece might have been better coming out of the euro.
“Having their own currency could have allowed these countries to better reflect their own economic circumstances.”
Speaking of Italy, Spain and Greece, he explained one of the biggest challenges would have been struggling with an artificially strong currency.
Mr Hickman said: “Being part of the eurozone has been a challenge as economically these countries have had to struggle with an artificially strong currency, making it difficult for these countries to grow exports.
“Typically when a country isn’t doing well economically, the currency of that country reflects it by weakening, making it cheaper for other countries to buy their goods.
“However, this hasn’t been the case and Greece in particular has suffered and had to receive numerous bailouts.”
But it is not all doom and gloom for the single currency.
Economists argue that the problems within less economical prosperous European nations have been magnified, but not caused by, the euro.
Speaking to Euronews, economist Duncan Weldon argued growth in the eurozone has been positive over the last few years and claimed the currency is “out of the danger zone” for the short term after a “very, very tough five or six years”.
He said: “Since 2015, there has been a real recovery in European growth, growth for the last couple of years has been decent.
“In the short term, the euro is out of the danger zone.
“The important thing to remember is that even in countries that have had really tough economic times — Greece, Italy, etc — public support for the euro remains very strong.”