Viability of the Euro

With the recent slow-down in the global economy, the question of Britain joining the economic Eurozone has reared its head once again, to the joy of some and the dismay of others. In the end, however, the result will obviously depend on the feasibility and benefits provided by merging the sterling with the euro.

How strong is it?

While the current value of the sterling has dropped to 16 percent below the enterprise risk management (ERM) entry level, the focus is shed on the United Kingdom’s current consumer rates and growth rates since 2004, something which seems to have been running parallel to that of the Eurozone. This has again prompted those with a positive disposition to joining the euro to raise their heads in hope. But, says Financial Times journalist Martin Wolf, the United Kingdom has a more secure position by remaining true to its sterling currency. This has especially been proven true with the ability of the sterling to have a hand in determining its own interest rates thus restraining the impact of the recent credit crunch. Had the United Kingdom joined the Eurozone, inflation would possibly have been higher as is seen with those European states without the same cushioning securities.

How far are the effects?

Another key consideration that has deterred a big player such as the sterling from joining the Eurozone is of course the fact that, along with the rest of the world, the Euro is now also feeling the brunt of the global economic slump. Restrictive credit measures are starting to emerge along with rising unemployment in the German market and sliding consumer confidence hitting countries like France with a forceful blow. At the centre of the issue, however, are those countries currently accumulating current account deficits due to a resulting lack of competitiveness provide by the shelter of the strong euro and thus inhibiting the trade performance of the Eurozone’s currency. Their only option now is to look toward solutions which might give them some ground to stand on such as wage decreases, unless the European Central Bank (ECB) cuts interest rates which, to some, seem unlikely at this stage. These countries also don’t have the option of devaluating their own currencies which could have proved to be a sensible solution at this stage.

How long the current slump will remain is uncertain, but one thing is clear: while the euro remains weaker than the sterling, the chances of the latter joining currency forces with its European counterparts is something that won’t happen in the foreseeable future.