Anatomy of the EU Economic Crisis

The European Union (EU) economic crisis is regarded by many as the biggest challenge that the group has ever faced. Years ago, the euro, eu’s official currency, was hailed by many as the currency that will dethrone the dollar. However, as soon as the Greek economic tragedy came, currency speculators who used to rely on the euro, suddenly changed their minds and dumped their euro currency holdings. What exactly happened?

Let’s talk about what overvalued selling means in the context of the euro and the 2010 EU crisis.

Currencies exchange rates differ almost every day. They are quite freely dictated by market prices, i.e. Supply and demand. If the euros circulating in the world market lose demand, the euro loses value. There are many factors that affect this. However, in the context of the EU economic crisis, the main trigger is the burden that is Greece. Thus, everybody braced themselves for the plunge of the Euro as soon as news of the Greek debacle broke out.

This constant decrease in value is where currency speculators perform overvalued selling. They try to capitalize on the continuous dip of the euro. Even if the changes are small currency speculators can still make money due to the volume of currency that they trade in every transaction.

Prior to the 2010 crisis, the euro was very strong, trading at about 1.5: 1 to the dollar. However, as soon as Greece admitted that it was in a fix, markets got worried and trading slowed down. Because of this, demand for the euro fell. In turn, the euro’s value plunged, because everyone had less need for it.

Currency speculators, who relied on pre-crisis undervalued selling, panicked. Overnight, they dumped even more euros by exchanging them for the dollar, to maximize whatever they have gained during the time when the euro was still strong. It is bad enough that demand for the Euro was falling, but increasing its supply in the market through massive dumping made the situation even worse.

Furthermore, a new wave of currency speculators came in – those who rely on in-crisis overvalued selling. They took advantage of the situation by exchanging their euros for dollars, and massively gain by sheer trading volume.

For example, if i have 100 euros today and the rate is at 1: 1 to the dollar, i can exchange these for 100 dollars, and wait for a dip in euro value later on. Supposing that the euro falls into 2:1 to the dollar, what was initially just a 100-euro account has now become 200 euros – just by waiting.

Currency speculation is ridiculously simple but it is ridiculously devastating.

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