Wednesday, May 26, 2010

The Euro's Dive: The Story in a Chart

In five months, the euro has lost about 20 percent of its value versus the U.S. dollar. Granted, the euro was probably overvalued in December--partially because of increasing discontent with U.S. dollar and the increasing irresponsible U.S. fiscal policy--but the euro's decline strikes me (a slightly informed observer) as something more fundamental than a market correction to an temporarily overpriced currency. If the stock of a publicly traded company dropped like this, its investors would be extremely worried.

The euro's sharp decline seems to reflect increasing skepticism about the euro zone's (and even the entire European Union's) ability to weather serious economic problems. The real tests of a currency and a country--or in this case a quasi-superstate heavy on bureaucracy--come during times of trouble, not the relatively smooth sailing since the end of collapse of the Soviet Union and the end of the Cold War. The cracks are already appearing, such as the German taxpayers' increasing unhappiness with bearing a disproportionate share of the cost of propping up the Greek economy and the rest of the euro zone.

It will be interesting--intellectually, politically, and economically--to see how this economic storm changes the euro and the EU. Quite frankly, I seriously doubt that the EU has the institutional capability to respond effectively to these economic troubles.

On the brighter side, if the euro continues to drop, I may be taking my next trip to Europe much sooner than I had expected.

Additional Resources
For the Euro-USD exchange rate, see Yahoo! Finance.

No comments:

Post a Comment


blogger templates | Make Money Online