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What is the Euro?

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The Euro is theworld’s second most important currency after the US dollar. Unlike mostcurrencies which are issued by national governments the Euro is issued by aregional body called the European Union. The Euro is issued by the EuropeanCentral Bankwhich has the same role as the Federal Reserve Bank in the United States. TheEuro has taken the place of national currencies in 17 of the 27 Europeannations that make up the European Union.


The Euro wascreated in 1999 and it has taken the place of a number of European currenciesincluding the German Deutschmark, the French Franc and the Italian Lira. Someobservers consider the Euro as an extension of the now defunct German currencyor Deutschmark. Germanyis the largest and richest nation in the European Union.


Europeannations can decide whether to use the Euro or not. The most important nationnot adopt the Euro is the United Kingdom or Great Britain. Britain stilluses its traditional national currency the pound sterling. Some other Europeancountries including Switzerlandand Swedenremain outside the Euro system which is sometimes called the Euro Zone.


Whythe Euro is So Important

The Euro isconsidered to be one of the world’s most important economic indicators becauseit is the main currency in the world’s largest and richest trading area: Europe. The value of the Euro reflects the economichealth of Europe and the amount of commercebeing conducted there.


If the valueof the Euro falls it can be seen as an indicator of poor economic health. Thatcould mean that Europeans are buying less which can hurt the United Stateswhich relies heavily on European trade for its economic success. It can hurtthe USin another way because other nations that trade with Europesuch as Chinawill have less money to spend on US goods if they get less from Europe.


The Euro isalso one of the lynchpins of the international currency trading system or Forexwhich determines the value of currency. It is widely used in internationalbusiness so the volume of Euro trading and the currency’s value can be seen asan indicator of global economic health.


EuropeanDebt Crisis

Between 2009and 2012 the Euro’s reputation was badly damaged by the European debt crisis.This occurred because a number of European nations including Greece, Italy, Portugal, Spain and Ireland hadaccumulated national debts that they could not pay off. This undermined thevalue of the Euro and threatened the European system.


Part of thereason why the crisis had such repercussions was that it was widely expectedthat wealthier European nations like Germany would have to spend part oftheir money to bail weaker nations out. Another problem was that the crisisbred social unrest in some nations.


Theinability of European nations to resolve this country made it appear that theEuropean Union and some of its member nations were dysfunctional. Thisundermined faith in the Euro and its value.


Despite thecrisis the Euro continues to be widely used and accepted. Part of the reason itis so widely accepted is that the Euro is seen to be backed by Germany whichis considered to be one of the world’s most prosperous and fiscally soundnations. Therefore the only way the Euro could collapse or disappear is if Germany wouldpull out of the European Union or abandon the Euro. That is not likely eventhough some nationalists in Germanyhave demanded it.


A morelikely outcome of the debt crisis would be for Germany to become more powerful in Europe and the strength of the Euro to increase. Thedemise of the Euro is unlikely because there appears to be no alternative toit.






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