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The Troubled Euro: Europe's Grand Economic Experiment

The troubled state of the Euro (Click to Enlarge)

The Trouble with Euros

The euro is the biggest monetary reform in Europe since the Roman Empire. The new European note knits together the economies of 22 unique countries. Unfortunately, however, when one country is fiscally irresponsible, the entire Euro-zone suffers. Today, as Greece’s Debt spirals out of control, the Euro plummets as a result. Here’s a look at Europe’s grand experiment: the Euro.

How Many Euros Are There?

The total value of goods and services in 2006 in trillions of dollars was slightly higher than that of the United States at about $13 trillion. The total printed money value in hundreds of billions of dollars is about $800 billion in the European Union, about $700.8 billion in the USA and about $600 billion in Japan. The total currency available (including physical money, electronic accounts, savings, government loans, etc.) in trillions of dollars, includes $11 trillion in the European Union, about $12 trillion in the USA and about $10 trillion in Japan.

Euro users include: Andorra, Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Kosovo, Luxembourg, Malta, Monaco, The Netherlands, Portugal, Slovakia, Slovenia and Spain.

What Happens if an EU Country Goes Broke?

Amidst fears of Grecian economic collapse, France and Germany are negotiating to bail out Greece to the tune of 41 billion dollars. Though the vast majority of German and French citizens don’'t support a bailout, the government's fear that Grecian instability could destroy the Euro. But, the deal is far from certain, and many people are wondering what will happen if Greece goes broke. Here are three scenarios.

Germany and France Bail Out Greece

This option is very unpopular with French and German voters, since they are trying to come up with cash to bail out their own failing banks. Additionally, the EU charter has a no-bailout clause that would have to be worked around. The bailout would likely impose high restrictions on Grecian spending and demand a full repayment with interest, which could keep Greece in debt for years.

Greece Is Kicked Out of the Euro Club

Greece would be forced to create a new currency system which would be difficult because the country would have just defaulted on its debt. This could devastate the Grecian economy, and the panic could spread to other teetering countries like Spain and Portugal. The EU charter is supposed to be irrevocable, so kicking out a member would be difficult.

Greece Goes Broke and Keeps the Euro

Keeping the Euro would make debt restructuring easier, since Greece’s currency will remain stable. However, this would cause a serious drop in the value of the Euro and cripple the rest of the Eurozone as Greece drags down their currency.

Advantages of the Euro

A common currency encourages inter-European trade. A larger economic pool helps level out local recessions; strengthening everyone’s currency on the whole. A uniform currency stops nations from devaluing their money to provide cheaper labor, which keeps wages higher.

A combined market allows Europe to bargain more effectively for their common interests against powerhouses like China and the U.S. Travel across Europe is much simpler without costly conversion fees.

Disadvantages of the Euro

The Euro limits a country’s economic policy options, and they can no longer act solely in their own self interest. Poor countries can’'t devalue their currency, which would lower the price of goods in their country and bring in more buyers.

One weak country can hurt the economic stability of all Euro users. Since each country is sovereign, there are no coordinated economic tools in case of an emergency like the current global economic meltdown.

How Many Dollars a Euro Buys

The value of the Euro has slumped recently against the dollar. On October 12, the Euro could buy about 1.45 dollars. On November 10, a Euro could buy about 1.50 dollars. On December 9, one Euro could purchase about 1.47 dollars. On January 11, one Euro could buy about 1.42 dollars. On February 9, one Euro could buy about 1.36 dollars.

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