International Finance - Essay Example

The Future of Euro and Eurozone The Future of Euro and Eurozone Euro has spent the best part of two years in absolute desolation. There are a few people who have an optimistic outlook on things, thinking EU leaders just might be powerful enough to keep the markets at bay so that Euro can wriggle its way out of this mess. But a large number of people believe that Euro’s days are numbered. It is widely believed that the currency will be broken into multiple currencies. It may also have to shed a few countries to retain some semblance of its former glory.

(Bremner, 2012)Euro is threatening to wreak havoc as the German inflationary strategies are leading to leftist political repercussions throughout Southern Europe. Also, Germany doesn’t want Europe to unite for a Fiscal Union as it will mean more inflation for the country. These are just some of the factors that are predicting a collapsed European financial system. And then there is Greece. There is an internal war of sorts going on within the country; many want Greece to leave eurozone for good which will be disastrous for the rest of Europe as many other countries will be forced to leave the eurozone as well.

(Bremner, 2012)Citigroup, an American banking conglomerate predicts that is a 75% chance that Greece will pull out of Euro within the next year and a half. This will set the standard for other financially despondent eurozone members, like Italy and Spain as they too will have to leave. (Kollewe, 2012)Its exit from eurozone will unravel Greece as well, as the 20% of its GDP will be wiped out, increasing its inflation rates by 40% to 50%. Not to mention. The Greek debt to GDP ratio will swell by 200% as predicted by the analysts at BNP Paribas.

(Kollewe, 2012)It seems that only the ECB can decide the fate of this currency. During the end of last year, the European Central Bank loosened some of its bank funds. Right before Christmas, European banks received €489 billion or $620.3 billion. This led to a reduction in Italy’s short term funding. If ECB and Germany can find it in their hearts to work towards more reflationary policies then perhaps the Euro could survive (Bremner 2012).But Euro still has some hope left. Greeks do not like the idea of their desolate future without Euro.

Despite all the anticipation, there are few Greeks who want to go back to the Drachma. Indeed, the notion of mass bankruptcies and visions of 50% inflation have won nearly 80% Greeks over. This huge number of people now wants to stay with the currency, says a recent survey. (Bremner, 2012)So it seems that more than the European Central Bank, the fate of the Euro might be resting in the hands of the common people of Greece, Spain, Italy, Ireland, France and even Germany. The opinions of the policymakers, the elite who have believed in the validity of the European project have been made redundant.

Now only the public opinion in these countries could predict the future of the Euro. (Bremner, 2012)France may also be badly hit by a receding Euro as one of its largest trading partner; Qatar also bows under the pressure of the eurozone crisis like the rest of the world. A dwindling euro will also destabilize France’s plans to invest heavily in Qatar’s infrastructure ahead of the 2022 Football World cup. (Tuttle, 2012)ReferencesBremner, C. (2012, January 02). “Fate of the euro will be decided on the street.

” The Australian. Retrieved from: http://www.theaustralian.com.au/business/world/fate-of-the-euro-will-be-decided-on-the-street/story-e6frg90o-1226234644917Kollewe, J. (2012, May 13). “How greece could leave the eurozone – in five difficult steps.” The Guardian. Retrieved from: http://www.guardian.co.uk/business/2012/may/13/greece-leave-eurozone-five-difficult-stepsTuttle, R. (2012, July 02). “Qatar world cup funding may get harder on europe: Arab credit.” Bloomberg Businessweek.

Retrieved from: http://www.businessweek.com/news/2012-07-02/qatar-world-cup-funding-may-get-harder-on-europe-arab-credit