Is The Euro Falling Apart?

An Italian government official has created a small firestorm by suggesting that Italy should vote on whether to keep the Euro, causing ripples in the currency markets. While no doubt this minister’s comments aren’t representative of the Italian government’s position on the issue, the idea of ditching the Euro is gaining popularity due to the tide of Euroskepticism.

Meanwhile, EU President Jean-Claude Juncker of Luxembourg is warning that the Euro is overvalued compared to the dollar and that the “no” votes of France and the Netherlands will challenge the stability of the Eurozone.

The Euro isn’t a bad idea, and makes a certain amount of sense. At the same time, the economies of the Eurozone are very different, and taking away the ability for a country like Germany to use monetary policy to soften a financial crash doesn’t help much either. The Euro works well if you have a largely harmonious economy, but when you have such divisions maintaining a monetary union is difficult at best.

At the same time, I don’t see the Euro going away. Going back to the lira would be disastrous for Italy, and even though Germany’s been getting hammered by the ECB’s tight monetary policies, their economy is slowly recovering on its own. If Germany were to pull out of the Euro, it would cause massive disruptions to the Eurozone economy, which would in turn dash any hopes of Germany recovering independently. Like it or not, the Eurozone has made a decision to stand or fall together, and if the Euro flies apart, nobody will benefit.

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