The eurozone has been in deep financial straits for several years now. Over the last couple of years, the answer to financial concerns has been directed by an alliance of sorts between Germany and France, which has basically forced other eurozone nations with deep financial problems to enact austerity on their people. The French election of Francois Hollande may mark a shift in that strategy. I think Hollande’s election will eventually lead to the end of the eurozone.
A lot of pundits have been pointing to the problems in Greece, and Europe in general, as a reason why tax and spend policies will eventually lead to our doom. They say, “if we don’t want to become Greece, we need to cut spending drastically now!” I agree that spending has been a problem in many of these European countries, but spending is not what has kept Europe in a rut. The euro has.
The euro is the reason for the continuing financial strains many European countries are under. Why? The euro is a single reserve currency for 17 nations, each with its own citizens, history, wants, desires, ideologies, and culture. Each of these countries has different electorates that want their government to do things differently. These countries need to have their own currencies which they can control, because from there market forces will be able to keep spending in check. Instead, we now have a situation where the two most powerful countriesin the eurozone (Germany and France) are dictating to others what they must do. Obviously, that will not go over well over a long period of time.
Now, the alliance between Germany and France is in question because France just elected a socialist, Francois Hollande, who doesn’t exactly share the same austerity centric views that the German Chancellor, Angela Merkel does. I think that this development will be the catalyst that eventually will lead to the breakup of the eurozone and the euro. The euro was a great experiment thought up during the boom times of the 1990s. It was not designed well enough to withstand sustained down-times in the economy. It must be broken up in order for Europe to heal in the long-term.
The breakup of the euro will have repercussions that will reverberate throughout the world. How severe these repercussions will be is still yet to be seen. They may indeed lead to a second recession here in the United States; they may lead to another European war; everything is still up in the air on this one. The reality is, the breakup of the euro is a good thing long-term because the experiment has not been successful. It was a great idea, but in practice it cannot be sustained.
What do you think? Will the euro breakup? What do you think the repercussions of a eurozone breakup will be?