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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1Good question and welcome to the site. A note about the Stack Exchange family of sites: They are not intended to be forums, so introductions and such are not warranted. They are intended to be a timeless collection of questions and answers. We prefer generalizing questions as much as reasonable, so they can stand the test of time. (Hence, my edit of the title.)– George MarianNov 16, 2010 at 17:49
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1 Answer
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.
answered Nov 16, 2010 at 17:39
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Ok. That makes sense. Would the demise of the Euro further damage the value of the dollar (assuming it can be damaged further)? Nov 16, 2010 at 17:51
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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? Nov 16, 2010 at 19:15
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2@Raskolnikov Important advantage is that Euro vastly decreases currency risk and transaction costs, making credit cheaper and trading more efficient.– dbkkNov 17, 2010 at 3:54
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2Another is transparency on pricing which permits goods to be compared, without exchange-rate "masking", across the euro-zone.– TurukawaNov 17, 2010 at 6:06
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@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? Sep 6, 2011 at 11:13