I have never been more disappointed to work in Germany when I saw the Euro nosediving against most of world currencies, including Rupee. The last figure that I have was when 1 euro was traded against 55.9 Rs., 14 Rs. down from the peak that it scaled sometime last year. To most of us, it is clear that European Union is heading towards another stern challenge after 2008 “subprime” crisis. What’s more, they even have a name for her, “Common Currency Crisis!”
Greece’s sovereign debt is close to a default, and next in line are other weak European economies like Portugal, Ireland, Spain, and Italy. This is likely to cause a Domino effect in the Euro-zone, since the foreign lenders are now calculating risks differently. The investment markets are in a gloom over the uncertainty, which is leading to weakening of euro. In that case, one can sense that the catastrophe is not pragmatic, but a product of speculations and sentiment. Adding to it, German chancellor, Angela Merkel has commented that failing of euro means failing of the entire idea behind European Union. French president, Nicholas Sarkozy has lamented over the bail-out package and threatened to quit common currency.
On the brighter side, last week senior officials and policy-makers have met in Brussels to chalk out a plan to boost euro and strictly monitor profligate economies. A whopping 750 Billion euros bail-out package was also declared, together with International monetary fund (IMF) and European central bank (ECB). But there are still doubts whether the idea of EU’s interference in the national budgets will question the sovereignty of faltering states. Greece’s population is already opposing the austerity measures and against such “mediation,” and humiliation by lending countries. The future is bleak considering that the existing governments will not be able to perform under mounting public pressure.
In a more realistic sense, it has to be accepted that the latest debacle will have a manifold of effect on not just European but global economy. A weak euro has affected export-driven businesses and it is marring fresh investments. The confidence of European economy will be totally shaken with the “double dip,” significantly altering its equation with China and India. The domestic market and employment in individual countries, which had just come out of red, is also likely to be hit hard. On the other side, euro’s loss has benefited dollar to gain against influential currencies like Chinese Yuan, thereby boosting its prospects for trading and investment.
One might suspect, if there is any “malicious” interplay from American firms that are desperately waiting for dollar to gain sizeable weight against euro. The standard and poor’s, an American agency, has supposedly rated entire nations, for instance Spain, as nonprofitable. Of course, profligate countries have their own reasons for failing and poor performance, but the speculations are not bilaterally beneficial. In that case, it is admirable that a single country like Germany has thrown its weight behind Greece to spare it from defaulting. One can only hope that if Greece and its companions like Portugal, Ireland, and Spain follow the austerity measures and the guidelines of ECB and IMF, it is highly likely that the recovery would be back on track!
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