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The Euro Celebrates its 20th Birthday

In this interview with Maya Hojeij from Asharq Business Bloomberg, Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Harvard Kennedy School and the Center on Global Energy Policy at Columbia University, comments on the current status of the Euro after twenty years of being launched.

The Euro is still standing strong. Twenty years ago, many doubted the currency’s ability to survive. It is the second strongest currency in the world, representing 20% of world’s reserves and covering a significant portion of total transactions. The Euro is an integral part of daily commerce and affects the European Union (EU). However, with all the Euro’s good attributes, some problems also come. For instance, the currency has no financial unit and is not supported by any standard fiscal policy, the reason many analysts doubted its survival. It isn’t also backed by a banking union, and there is no unit for the financial markets or union of financial markets. Such weak points should be addressed in the future.

The ultimate reason behind the lag in financial unification is in the differing political views between various EU members. The EU is run by the European Commission, and within the commission, each country has one vote; therefore, a big economy such as Germany has a voting power that matches that of Latvia, a smaller economy, thereby creating some power imbalances within the commission. For a fiscal and monetary union to exist, a European government, elected by a majority of parliament is required. That is far-fetched; however, that is what is required to achieve a common policy, fiscal or monetary. Small amendments will not adjust the matter, significant political change will.

There is a gradual increase in the Euro’s power, particularly in countries such as Croatia and in Eastern Europe that tie its currency to the Euro. There is no clear backup plan or rules for countries who wish to replace the Euro. We simply do not know what will happen if a country leaves. This will probably mean that the country will go back to its previous currency and this becomes an unprecedented technical matter. The Euro’s importance is increasing but with the lack of a strong political and monetary support, it won’t be able to match the US dollar’s status.

The Euro will face a challenge if China increases the Yuan’s power as a reserve currency. Currently, China does not pose a direct threat and Europe does not mind being in second place between the two biggest competitors, China and the US. Europe is an exporting region and wants a resilient currency that isn’t necessarily the biggest reserve currency around the world (like the US dollar). Therefore, Europe is in a good place today and some even say it is a better place than it was before the Euro entered the market.

Watch the full discussion (in Arabic):

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