I've been reading a lot about the impending bankruptcy of Ireland/Portugal/Spain etc. and how this could mean the end of the Euro.

I cannot connect the dots here. Why would this mean the demise of the Euro?

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The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU.

Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy.

The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing.

  • Ok. That makes sense. Would the demise of the Euro further damage the value of the dollar (assuming it can be damaged further)? – Randy Minder Nov 16 '10 at 17:51
  • Nice reply. Could you expand a bit on the advantages that the Euro offer. One I can think of is naturally the fact that it is not necessary to change currency within the EU when traveling and trading. Are there others? – Raskolnikov Nov 16 '10 at 19:15
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    @Raskolnikov Important advantage is that Euro vastly decreases currency risk and transaction costs, making credit cheaper and trading more efficient. – dbkk Nov 17 '10 at 3:54
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    Another is transparency on pricing which permits goods to be compared, without exchange-rate "masking", across the euro-zone. – Turukawa Nov 17 '10 at 6:06
  • @Benjamin Chambers: what do you mean when you say that countries will withdraw their participation. I don't understand how can they withdraw their partecipation from Euro/Europe? Do you mean they withdraw money from the ECB? – Marco Demaio Sep 6 '11 at 11:13

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