Since it was first created in 1999, the Eurozone has never been so close to breaking apart as it is today. The pressure that comes with trying to serve the divergent needs of 17 different economies, sharing little more than geography and a common currency, appears to have finally pushed the region to the very limits of its ability to endure.
Famed economist Milton Friedman was no fan of the Eurozone. In 2000, just one year after the official launch of the Eurozone, Friedman was asked for his outlook on the region after addressing a conference hosted by the Bank of Canada. Twelve years later, it is clear that FriedmanÃ¢â‚¬â„¢s early assessment was spot-on accurate:
I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, itÃ¢â‚¬â„¢s hard to believe that itÃ¢â‚¬â„¢s going to be a stable system for a long time.
As part of his appraisal, Friedman suggested the Eurozone would last no more than 10 years. He may be a little off in his timing, but may yet be proven accurate over all.
Officials Now Acknowledge Eurozone Breakup Possible
Over the past few years the debt crisis in Europe has only worsened. Yet, during this time, the one subject that remained taboo was any talk that a member nation could be forced to leave the euro or even leave on its own volition. Even as recently as the days leading up to the summit meeting on October 26th, German Chancellor Angela Merkel and French President Nicolas Sarkozy were adamant that Greece would remain within the euro.
After a couple of false starts during the summit meeting, an agreement was Ã¢â‚¬â€œ eventually Ã¢â‚¬â€œ arranged to provide Greece with emergency funding in exchange for a stronger commitment from the Greek government to balance the budget. The markets were heartened by this and stock prices rebounded.
But then Greek Prime Minister Ã¢â‚¬â€œ er Ã¢â‚¬â€œ former Prime Minister Papandreou revealed that he would hold a referendum before officially agreeing to the terms of the deal. Exasperation with this unnecessary action and the resulting panic in the markets drove some officials to finally mutter that maybe everyone would be better off if Greece were no longer part of the Eurozone.
What Was Once Unmentionable is Now Tolerated
Breaking further with the former message of Eurozone solidarity, British Prime Minister David Cameron took on a sinister tone when he described Italy as a Ã¢â‚¬Å“clear and present dangerÃ¢â‚¬Â for the euro:
Italy is the third-largest country in the euro. Its current state is a clear and present dander to the Eurozone and the moment of truth is fast approaching.
Sinister or not, the British PM is simply being pragmatic. The Italian debt is now pegged at roughly $2.6 trillion, or five times that owed by Greece. This is simply beyond the scope of the EU to backstop with direct financial support as has been attempted with Greece.
When it comes to dealing with its debt, Italy is on its own Ã¢â‚¬â€œ coincidently, Ã¢â‚¬Å“on its ownÃ¢â‚¬Â may be exactly how some Eurozone members feel Italy should be right now.
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