The First Five Years of the Euro - A Positive Evaluation

 


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The relatively new European Currency - The Euro - has just passed its first five years’ lustrum. Five years for a new currency is not enough to elaborate a full evaluation because that would require a longer existence to analyze the development over a mayor economic cycle of about eleven years. Yet a concise evaluation shows anything but a negative outcome for the Euro.

Those who remember the introduction of the currency will picture the depreciation of the euro against the dollar in early existence. The Euro got introduced (against the US Dollar) for $1.18 and fell to about 82 dollar cents in 2000 (http://en. wikipedia.org/wiki/Euro). Yet now after five years the Euro has been increased in value against the same dollar and is trading at about 1,30$.

For the first time there are also more euros notes in circulation than dollars. (http://www.ft.com/cms/s/1bb2cbb2-9618-11db-9976-0000779e2340.html) But notes are only a small portion of the global financial flows and assets.

In the financial world the Euro has shown its value as an extra reserve currency next to the Dollar and the Yen. This offers the financial world more choice in the case that one currency will face significant government deficits and depreciation. The former German Mark could not offer the same role. What the role has been for the Euro to fortalice the European economy is hard to tell. The fact that the Euro has developed as a strong currency is a positive sign. But it is hard to tell at what cost.

Investigation show that the (consumer) price level has not increased (additionally) with the introduction of the euro. But is this the same for the price level of real-estate? Most likely is that the real estate boom would have taken place anyhow.

What remains unsolved is the question whether the euro is strong due to a empowered (economic) Europe or because of other elements?

And, although this is informal information, many people still calculate in their original currencies. In Spain the euro is still printed on the supermarket receipt and any price discussion – about real estate - involves the “old" peseta. But this is more about politics than about finance and economics.

So far we may conclude that the introduction of the euro has been a success.

© 2007 Hans Bool

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management tools. Have a look at some of our free management tools

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