While many Americans are caught up in the drama of the Occupy Wall Street movement and the GOP primary charade, an international development of substantial concern is playing out. Many in Europe appear to be falling out of love with the euro. In the wake of the Greece and Italy debt fiascoes a number of eastern European countries - specifically Poland and Lithuania - have decided to postpone their transition into the euro zone. Though some may disregard this news as insignificant, it may be wiser to heed such measures as a warning sign of looming and potentially ominous change. If radical measures aren’t taken the euro will fail. Make no mistake, if the euro falls, the world’s well-being hangs in the balance.
Impossible? Ten years ago that seemed the case. The European Currency Unit, a collection of fixed amounts of national currencies, was traded for several years before assuming its current name, the euro on the January 1, 1999. In 2002 Germany decided to give up the Deutsche mark in what one political thinker believes to be “One of the most mature and generous decisions ever taken by a modern state…” With countries such as Romania and Bulgaria vying for membership in the EU it seemed an illustrious future for Europe heading into the 21st century.
Fast forward a decade to December 2011. Greece is a breath away from defaulting on its debts, Italy is in dire need of help, Ireland and Portugal have already been bailed out and there is mounting friction between power players France and Germany. Last week a survey of leading economists agreed that the euro is unlikely to last another five years. One economist stated there is “nearly zero chance” of the euro surviving while another went as far to say that the euro “may not survive the next week.”
Suffice to say the luster of the euro is gone. The problems are real. On Wednesday EU Monetary Affairs Commissioner - Olli Rehn - noted that the euro zone is entering “A critical period of 10 days to complete and conclude the crisis response.” This 10 day period culminates on December 9th at the EU summit in Brussels where leaders will meet to address “eurogeddon.” As Italy’s Prime Minister Mario Monti said, “There would be no room for error.”
With a sense of impending doom looming around a euro collapse, smaller European countries who previously hoped to join the euro zone are balking at the opportunity. Though how successful such maneuvering will be is certainly debatable. Sure, in the immediate future, if the euro were to implode then currencies such as the Polish zloty and Latvian Lat would suddenly recover against a previously stronger euro.
However, real concern should be given to long-term consequences. If the euro falls, there would be a period of economic chaos in Europe as business contracts drawn up in euros would be open to a variety of legal disputes. Contractual disagreements combined with already tense relationships could send countries into an economic tailspin. While peripheral currencies may reap immediate benefits, the long-term repercussions are far gloomier.
This appears to be a shared reality. Last week, Polish Foreign Minister Radoslaw Sikorski stated that Europeans are currently “standing on the edge of a precipice.” Sikorski went on to acknowledge that the prosperity of Europe, as well as his own country, depends upon the sustainability of the euro.
The euro is a major player. And not just on the continent but across the globe. The myth of decoupling does not apply. What is happening six time zones east of Wall Street will directly affect the already volatile market. President Barack Obama has acknowledged the euro zone poses one of the greatest threats to America’s well-being.
In other words, when EU leaders meet in Brussels on Friday the outcome may knock the Herman Cain soap opera from the headlines.
Photo Credit: Images_of_Money