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Could the Euro Really Go to Zero?
The European Economic Community was founded in the late 1950s to oversee the economic integration of the Western Europe. Currently, the members are; Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Spain and Portugal. Greece is scheduled to become the 12th member of the group January 1st of next year. The Euro has been around for less than two years, starting at about $1.17 vs. our dollar, and currently has drifted down to the mid-80 cent area. Before the Euro was born, the thinking was that Europe's problem was that they should be united like the United States-look how great that turned out! No fighting about borders (at least, not since 1865), no tariff problems, no changing money every 50 mile--UNITED-- it seemed so simple and logical.
But the reasoning hasn't worked; conventional wisdom was wrong again. The fatal flaw in the logic is that there are no winners in the Euro countries.
Now, before you think I'm being too harsh, take a look at the record. Take a look at the above list of countries that belong to the European union. Okay, where is the winner??
Remember, this was going to be a deal where the sum of the parts is greater than the whole. In this case, the parts are less than the whole, and in danger of falling into a big economic hole.
Recently, little Denmark decided 'No, thanks, we can make it on our own and don't want to join the wonderful European Union.' Great Britain has declined from the beginning. Germany was supposed to lead the European community as the biggest and strongest economy, but, in the early '90s, Germany led with its heart (and you thought they didn't have one!) and decided to reunite with their brothers and sisters in the East, this time, luckily, they stopped at the Polish border. The reunification of Germany hasn't really worked out. The old West Germany over-committed its following East Germany, and had a terrible case of economic and social indigestion ever since. Having visited both Germanys since the reunification, the citizens, believe it or not, on each side, would probably vote AGAINST the reunification, given a second chance. In short, the West Germans feel they've been sapped trying to jack up the East while the old Easterners don't feel at all equal with their Western kin and don't feel enough has been done for them. And what about freedom? Many in the East feel that the cradle-to-grave "protection" that the Soviets offered wasn't such a bad deal. Compared to the West with the "competition thing" and the "winner take all" attitude, well, the previous life was just a little more comfortable if less free.
Then there is France. France hasn't had a winner since when? About 1803? With a guy named Napoleon. They lost in 1815, and repeatedly around the world with their colonies ever since. They were defeated in WWI, WWII and French Indo China.
So, what else is left? Italy? Spain? I repeat, where is the winner?? My wife and I have visited virtually every country in the European Union in the last five years, and one thing stands out as clearly now as it did 20 or 30 years ago-all these people are driving forward with the use of their rearview mirror. It's all about tourism, ancient this and ancient that, castles and one hunk of ruins after another. Mostly they are so wrapped up in the 1600s and 1700s and 1800s that the New World continues to pass them by.
Why shouldn't the Euro go down? To my way of thinking there is no "New Europe." Europe is old and full of tradition and history, and that has its place, but cyberspace doesn't care about history and tradition. We may argue about whether or not that's good, but it is a fact. So, while the Euro probably won't go to zero, it has little appeal in the trading world. In fact, some economists feel that slowly but surely the rest of the world will at some point "dollarize," i.e., exchange their currency for the good old American dollar. It is already happening, and is likely to continue. From this perspective, the Euro continues to have little appeal, and is no competition for the dollar - the new Modern Europe isn't. The idea sounded good on paper, but it just hasn't worked out.
(Tom Butenhoff is a First Vice President with J. E. Liss and Company, Inc.
in Milwaukee. The views are his, and not necessarily those of Liss
Financial Services or the Job Connection/Hiring
Network.)