The European single currency has acted as a windbreaker against the global financial storm for euro zone businesses and citizens, financial experts said Monday, Dec. 29.
The single currency has shielded the euro zone from increased financial turmoil
Consensus is widespread that the strength of the currency has done for some European countries what would have been impossible had they kept their original monies.
The assessment came a few days ahead of the 10th anniversary of the euro being used as a virtual currency in accounting and financial transactions in the euro zone. Euro banknotes and coins were not introduced until Jan. 1, 2002.
Former German central bank president Hans Tietmeyer said the 16 euro zone member states had so far escaped foreign exchange turmoil because of the single currency.
"We would probably have had a series of currency crises," Tietmeyer told AFP news agency.
EU Commission President Jose Barroso has also sung the euro's praises, insisting recently that "the euro is sheltering businesses from the exchange rate volatility which has battered them in previous downturns."
ECB central to euro strength
The ECB, under President Jean-Claude Trichet, has drastically lowered interest rates
Tietmeyer said the euro zone's stable position has been underpinned by the creation of the Frankfurt-based European Central Bank (ECB) in 1998.
"As a result, the single currency has without doubt benefited the people and the economy of Europe," he said.
The ECB has been able to sharply lower interest rates during the current crisis, something Bank of America economist Gilles Moec said would not have been possible for countries such as Italy and Greece pre-1998.
"Economic policies were completely sterilized then, you could do nothing," he said.
"We would never have gotten the interest rate cuts we have had in Europe over the past year," when the ECB slashed its benchmark lending rate to 2.50 percent, with more to come in 2009.
Single currency firms in importance
The euro's exchange rate against the dollar peaked in July this year at $1.60
Having boosted trade among its members and created at least 16 million jobs since its inception, the euro has begun to firm as a premier globally reliable currency.
The euro zone is responsible for 16.5 percent of global economic activity, while the euro currency accounts for over a quarter of the world's official foreign reserves, up from 18 percent in 1998.
This has led many Europeans to feel their currency will supplant the US dollar in global importance within the next five years, according to a survey by the Financial Times business newspaper and Harris polling released Monday.
The poll showed that around 70 percent of Spaniards and two-thirds of French people believed "strongly" or "somewhat" that the euro would overtake the dollar in global importance.
Nearly 60 percent of Germans polled agreed with the statement, while just over 60 percent in Italy concurred.
One third of Germans polled also said their country wouldn't return to growth "in the foreseeable future."
Testing times ahead
Slovenia will join the euro zone in the new year
But with the current economic crisis has come the sternest test yet of the single currency, which is used by some 329 million euro zone residents.
Tietmeyer said he expected the euro zone to weather the current storm, but added that if pan-euro zone ECB monetary polices do not do the job for all member states, "it could lead to conflict between members states, which could be very damaging."
He said that differences in wage costs and fiscal discipline were issues "that we are seeing now in some countries."
Euro zone membership is now obligatory for all new EU member states, while Britain, Denmark and Sweden have a right to maintain their traditional currencies, though some leaders in those countries are now questioning the wisdom in continuing to do so.
Poland, Czech Republic, Hungary, the Baltic countries and Romania are all aiming to take up the euro within the next six years, but their pledge-dates have been second guessed as a result of instability created by the global financial crisis.