Is the Euro’s future secure?

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This year has marked the 20th anniversary of the Euro but the continent-wide currency has reached this milestone on the back of a crisis in which its future was in question. So, for investors watching on, was this a happy birthday or are we in the dying days of a failed experiment?

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It’s fair to say that the Euro has always sparked debates among experts. As The Economist noted: “It united Europe’s leaders, who hailed a new era of tighter integration, easier trade and faster growth, thinking they were building a currency to rival the dollar. But the euro divided economists, some of whom warned that binding Europe’s disparate economies to a single monetary policy was an act of historic folly.”

During the darkest hours of the sovereign debt crisis that engulfed the Eurozone in 2009 – outlined in detail by DailyFX here – it did indeed look as though the currency was destined to be seen as a folly.

Yet the currency has proven more resilient than its most fierce critics thought possible in the last 20 years and the real folly might come in writing it off so easily.

The American international trade policy has forced many investors to diversify their portfolios and when it comes to liquid assets the Euro is second only to the Dollar. In some ways, withstanding the debt crisis has given investors confidence that the Euro is built to last too. EU leaders certainly haven’t given up on the project and have shown they are willing to stand by the Euro. Crucially, the people also believe in it too – with 74 per cent of those living in the Eurozone arguing that the single currency is good for the EU. That’s up from 67 per cent in 2016 – while the number of people saying it’s bad dropped to just 15 per cent. Populist politics might be on the rise across Europe, but that hasn’t yet developed into a popular movement against the currency – a reassuring fact for investors.

That’s not to say that everything is positive. There are still issues that need to be resolved if the Eurozone is to put the period of crisis behind it and these may shape the future of the Euro. EU leaders have been indecisive over whether or not there’s the need for a full fiscal union, but have engaged in further measures to strengthen the currency union – not least in December’s boost for its bailout fund, the European Stability Mechanism. The economic future of the continent might also, in part at least, be shaped by the reaction to Brexit and how quickly and easily a future relationship can be agreed with the UK.

The Euro, therefore, marks something of an ‘unfinished revolution’ for Europe. While ever it remains unfinished there will be question marks from investors, who are right to be cautious over what happens next. Yet support from the public and politicians suggest that there should be a few more anniversaries to celebrate for this currency.

 

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