Economy20 years after its introduction, what are the challenges...

20 years after its introduction, what are the challenges for the single currency?

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Friday at midnight, we will not only celebrate the transition to 2022, after a particularly trying year 2021. At the headquarters of the European Central Bank in Frankfurt, we will also celebrate the 20 years of the euro, illuminations of the building at stake. The single currency has imposed itself in Europe and in the world, gaining a status of reference currency, regularly visible and identified in American films and series for example. Bet won? For its twentieth anniversary, the euro could experience two major developments: the overhaul of the design of its banknotes and the implementation of the digital euro, a kind of cryptocurrency managed by the ECB. Two projects with major challenges for the European economy. So, 20 years later, what’s next for the euro? 20 Minutes take stock with two economists.

Start from the balance sheet

To better understand the challenges to be taken up by the euro in the years to come, it is first necessary to draw a quick assessment. For many economists, it is rather positive. “It is a currency on which we will not come back, even those who wanted to get out of it returned”, slice Stéphanie Villiers, economist specializing in the euro area. If there is undoubtedly a side “practical to circulate freely in 19 countries without changing currency”, the attachment of Europeans is also to be noted. In polls carried out by the ECB, the euro is still considered “a good thing” by at least 66% of those polled in 2011 and by 78% in 2021.

In addition, “the euro has weathered the crises rather well”, notes Jacques Le Cacheux, including that of the sovereign debts of Greece or Italy “without losing countries”, while some countries were ready to disembark the Greeks by force. The professor of economics at the University of Pau also underlines “the great monetary stability, with lower inflation than in previous decades”. And that’s good, controlling inflation was the ECB’s primary mission. The euro, a real success then?

The match with the dollar

There is still a box that is not checked: competition with the dollar in international trade. If the euro weighs “between a third and a quarter of trade”, according to Jacques Le Cacheux, “the dollar has retained its dominant position in all compartments”. The exchange rate has changed little. Not to mention the emergence of an unforeseen actor: China. Relegated to third place, the euro can only be a spectator of a dollar “international currency”, in which everyone has confidence. To the point that “the rest of the world is ready to support the United States,” says Stéphanie Villiers, despite her decline.

So what did the Europeans miss to fold the game? For the specialist of the euro zone, the original sin is in the City. In London, where the European financial powers have settled “to convince the United Kingdom to integrate the euro”. It is ultimately the “worst case scenario” that unfolded, with the development of the City not benefiting Europeans and then Brexit. Consequently, “the major European financial centers like Paris, Frankfurt or Milan are far behind London, and even further from New York”, regrets Jacques Le Cacheux.

Growing Up Can Wait

“Nobody believes in the capacity of the euro to compete with the dollar”, act Stéphanie Villiers. She nevertheless wishes to see an ever more “ambitious” euro. But for the two economists interviewed by 20 Minutes, this will not immediately mean the inclusion of a twentieth member (that would still be a nice symbol) in the euro zone. First, because the candidate countries “do not necessarily want”, points out Jacques Le Cacheux. This is the case of Poland and Hungary, led by Eurosceptics, but also of Sweden, very happy with its crown.

Above all, “certain criteria must be respected,” recalls Stéphanie Villiers, and all the economies of Eastern Europe are not ready. The currency is already imbalanced, between the countries which took advantage of an undervalued euro (Germany, the Netherlands) to maximize their exports, and those which suffered from the change of currency, such as Italy, “a strong exporter. before but which can no longer devalue ”to boost sales. However, the ECB has integrated Bulgaria and Croatia into the process of creating the new banknotes. A harbinger of their integration into the euro zone?

More beautiful and more digital

After 20 years of good and loyal service, the banknotes modeled on architectural styles will indeed pass the hand. Officially to have banknotes “with which Europeans can identify and which they are proud to use”, communicates the ECB. Unofficially “to fight against counterfeit money, like all monetary systems”, smiles Jacques Le Cacheux. The professor underlines that the process could take time, because it had already been difficult to agree to 11. But it is not the only new form of euro which is in the boxes.

Scheduled for summer 2021, the launch of the digital euro has been delayed, due to the economic and health crisis. The technological stake, namely to position itself in a booming niche and reserved for the moment to private cryptocurrencies (Bitcoin, etc.) is doubled for the professor of economics of a “recovery in hand on the commercial banks of payments “. If we go through with the idea, tomorrow you could close your bank account to prefer the ECB, after all issuing money, and a little cash.

The euro’s main challenge, however, is in the shorter term: ensuring an exit from the crisis, during which the printing press got carried away to support the effort, without causing inflation to explode. “The ECB has gone beyond its mandate and seized on the survival of the euro zone” judges Stéphanie Villiers. To return to the 2% inflation mark, its golden rule broken in recent months, it must therefore stop buying debt and implement a more restrictive budgetary policy, considers Jacques Le Cacheux. On the other hand, the European Commission has, for the first time, borrowed in its own name to finance the recovery plans, notes Stéphanie Villiers. What finally progress on a common budgetary policy? This ambition remains a pure fiction for the economist, while the euro is not even a subject of the presidential campaign.

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