The Euro is totally spooked today on unconfirmed reports that the Irish PM, Brian Cowen, said in Tokyo today that Ireland may have to go to the IMF for a bail out if its economic situation continues to worsen. Although, within hours of the initial news report, the Irish government swiftly denied that Cowen had said this, the damage is already largely done - the markets are concluding that there is no smoke without fire. This brings me to an interesting question: is this the beginning of the end of the Euro?
Although many Save the Pound proponents have been driven largely by a patriotic arguments, I have always felt it sufficient to be against the Euro on purely economic grounds: each European economy is different, so each needs its own monetary policy to best meet its needs...simple.
Now, after a decade of the Euro, we are seeing its real test. Eurozone economies are collapsing fast, led by Ireland, Spain, Portugal and Greece – yet none of them have the ability to respond with lower interest rates, currency depreciation or even fiscal policy (given the requirement that they cannot have a budget deficit exceeding 3% of GDP). As a result, they are in a far tougher spot than the UK.
Personally I’m not saying the Euro’s days are over, but its most certainly being tested to the limit. Thank goodness we stayed out.
I would be interested in what readers think...are we nearing the end of the Euro?