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Anatomy of the EU Economic Crisis
Posted by: | CommentsThe 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.
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Euro and its Effects in the Global Economy
Posted by: | CommentsThe consensus of analysts that an appreciation of 10% in the euro exchange rate is causing a decline of one percentage point growth in the euro zone during the last two years, with a special emphasis in the second period. ‘Maintaining a high euro reduces Europe’s ability to generate wealth, and that makes it a less competitive area, explains a specialists of the euro economy. But in reality, this impact is not as easy to define, since it involves many nuances. For example: a strong currency attracts foreign investments in all asset classes. Another, the oil that is traded in dollars, has risen 95% in a year and a half, but the cost measured in euros has increased by 33%.
To what extent is damaging the appreciation against the dollar?
Very important, but not as much as it used to be in the past. The USA is no longer the largest trading partner on the bloc. The United Kingdom accounts for 16% of the exports of the euro area, while the U.S. equivalent to 14% and the rest is divided among various partners. ‘The most relevant to the regional economy is not crossing against the dollar, but the effective exchange rate, against major trading partners,’ says Anton Brender, Chief Economist at Dexia Asset Management. ‘An ideal combination would be a slight appreciation against the dollar, which would reduce the oil bill, and depreciation against other currencies, “suggests Brender. But, of course, that perfect combination is something that currently is not happening.
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