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Friday, 18 September 00:54 (GMT -05:00)

Business And Politics News

EU’s Anti-Crisis Strategy: Self-Delusion or Strong Bullish Driver for Euro


The eurozone has been fighting the continued debt crisis for 4 years now. The progress is unstable while the results are questionable. Moreover, even the veryparticipants of the process start questioning the efficiency if their actions. In other words, European politicians, financiers and analysts are divided over the major question: Have we chosen the right way?




Saving Eurozone
When it comes to saving the eurozone, we need to define what exactly to save: the common currency or those risky eurozone economies that undermine the overall stability in the union – Greece, Cyprus , Portugal , Spain and Italy.
Obviously, the representatives of the abovementioned countries support the latter. Experts are divided over the issue bout in the EU and outside.
There are several ways out of the crisis offered by them:
·         Commitment to austerity, which was called a financial consolidation strategy for the sake of political correctness.
·         Temporary and voluntary exit from the eurozone (offered to risky economies).
·         Exclusion from the eurozone as a measure for those economies that have violated financial discipline.
·         Germany’s exit from the eurozone.
Strange as it may seem, every single scenario has been seriously considered and has supporters.
This solution is offered by Brussels and Berlin. They keep urging every single eurozone economy (especially the risky ones) to practice austerity, including spending cuts, along with structural reforms. Their arguments can be reduced to the following ones:

1. Every one saves, including Scandinavia, Baltic countries, Eastern Europe, and even Germany itself despite being a locomotive for the eurozone economy.
2. Some minor results are already visible. Yet, there are examples of successful and efficient economic models in the EU – Romania, Estonia, Bulgaria, Latvia and Lithuania. These countries started practicing austerity immediately after the crisis broke out and managed to come out of the crisis later. On top of that, the austerity practiced in the EU has also started brining fruit. In particular, the structural deficit has declined by 50% since 2009.
3. The strategy of financial consolidation will work in the long run. This is the biggest hope for its supporters.
Still, austerity keeps facing strong opposition across the eurozone since it hurts households, affecting people’s living standards. This leads to political instability and market panic, thereby affecting the common European currency.

By the way, the Euro has recently weakened against the US Dollar, thereby forcing EURUSD to retrace from the recent gains. The chart below, courtesy of Masterforex-V Academy, reflects the current state of affairs in the market of EURUSD:



Temporary Exit
The second popular scenario is a temporary exit from the eurozone offered to risky economies. They say such a solution will allow these risky economies to restore their status quo, thereby easing the debt load.
Such an exit will devalue the national currency of such a country and will make exports more competitive in the international trade arena. This is expected to have a positive impact on the overall economic situation in such a risky economy. Such a solution is offered mainly to Greece, which is neck deep in debts. One way or another, time will show which strategy will be chose to save the eurozone from collapse…



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