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The Euro Experiment

The Euro Experiment

January 25, 2017

A Dynamic Commodities Exclusive

The euro is a reserve currency which means that central banks and monetary authorities around the world hold the foreign exchange instrument as a part of their reserves. Other major reserve currencies in the world are the U.S. dollar and yen. Recently, the International Monetary Fund has attempted to assist China when it comes to making the Chinese currency, the yuan, a reserve currency. As part of the process, China has been devaluing their currency. As of the beginning of 2017, the euro was the second most widely held reserve currency, second only to the U.S. dollar.

Euro History

Despite being such a widely held foreign currency instrument, the euro is young. The euro replaced many currencies across the European continent. The German mark, French franc, Italian lira, Greek drachma, Spanish peseta and many other currencies faded into history as a result of the Maastricht Treaty of 1992 that established the pan-European foreign currency instrument. The only major European nation that did not totally participate in the euro experiment was the United Kingdom which never abandoned the pound sterling.

The euro came into existence in 1995 in Madrid and became an official accounting currency on January 1, 1999. On that date, the official exchange rate was 1:1 against the U.S. dollar and all member currencies became fixed against the new means of exchange. By May 2002, euro coins and bills replaced all of the former paper monies in Europe. The euro changed foreign currency markets dramatically in that the number of currencies trading declined with the euro taking over for twenty two separate currencies across the continent.

A Bumpy Road

The road towards the common market and single currency has not been smooth. The culture in Northern Europe differs from the Southern European culture both politically and economically. Political policy for the European Union, the subject of heated debate, comes from Brussels, Belgium while economic policy has been a result of discussions and votes in Frankfurt, Germany the headquarters of the European Central Bank.

The official introduction of the euro currency had the most dramatic impact on the citizens of nations that joined the European Union; the pan-European trend had been underway for years before the currency was in the pockets of the over 200 million people who reside within the borders of the union. Globalism, or the idea that open borders and coordinated economic and political policies had been a trend that has been in force for more than the fourteen years since the introduction of the euro currency. However, for the average citizens of France, Germany, the Netherlands, Spain, Greece, Italy and all other member nations, the reality of globalism has hit home over recent years.

Different Cultures Cause Problems

The financial crisis of 2008, bailouts of Southern European nations came at a hefty price tag for the stronger Northern European economies. The bailouts exposed smoldering issues that were below the surface in the meetings in Brussels and Frankfurt for years leading up to the crisis. The attitudes when it came to financial austerity, taxation, and spending were as different as night and day in the North and South. The financial crisis exposed many of the differences and when the EU and ECB had to pay real money to bail out some of the Southern countries, it hit home for many in countries like Germany, France and the Netherlands.

Over recent years the humanitarian immigration crisis from countries like Syria, Iraq and those in North Africa has resulted in waves of immigrants seeking asylum in Europe. The economic consequences of the EU’s well intentioned open border policies when it comes to refugees arriving at Southern European ports on a daily basis in droves have been negative. The dilution of economies across Europe as waves of immigrants make their ways to final destinations far from arrival points has increased unemployment levels and government social welfare spending. Recent terrorist attacks in France, Belgium and Germany highlight that some of the refugees came to Europe to practice jihad rather than to seek asylum in free nations.

Signs for The Future

Popular opinion has begun to shift in Europe as the results of globalism and the great European experiment resulted in less than desirable outcomes for many average citizens who saw their standards of living decline and their nations change complexion with the arriving hordes. In 2016, dissatisfaction became a clear and present danger to the young European Union and its currency, the euro.

In June 2016, the cracks in the European Union resulted in a referendum whereby citizens of the U.K. voted to exit the EU. A December 2016 referendum in Italy sent a similar message. In 2017, elections in Germany, France and the Netherlands will have important ramifications for the future of the European Union and its currency the euro.

The great euro experiment commenced decades ago, but the euro is less than two decades old. The Union and its currency could face its greatest challenge in 2017 as voters in Northern Europe may continue to send a message like ones seen in the U.K. and Italy that is a rejection of the globalist wave and status quo.

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