Euro’s Credibility at Stake

The euro was introduced to global financial markets in 1999 and until recently the multi nation currency allowed the EU to compete with larger economies such as the US and Japan. For a while some nations held reserves in Euros as the US dollar fluctuated thanks to massive US deficits. The euro has been the second most widely used reserve currency after the US dollar and between its introduction in 1999 and 2008 the Euro’s share as a reserve currency grew from 17.9% to 26.5%. Recently the US dollar has recovered and is regaining its status and clout as a global reserve currency. Unfortunately some euro zone nations chose to live beyond their means most notable Greece. Investors fear that Greece’s problems will spread to other EU nations such as Portugal, Spain, Ireland and Italy. To maintain the euro’s credibility as a currency EU nations must adhere to monetary regulations designed to maintain a stable euro. Greece’s massive deficits are contrary to euro zone rules and threaten the stability of the euro and have also caused a political rift in the EU.

Greece May Turn to IMF For Aid

Greece is seeking help from the EU but many are speculating that help from the multi nation currency bloc may not be forthcoming. German opposition to EU aid for Greece has pressured the euro in global currency markets. Greek Prime Minister George Papandreou said that severe austerity measures and structural reform demonstrates the Athens government is committed to resolving Greece’s fiscal crisis but high borrowing costs are making it difficult for Greece to meet budget goals. Papandreou stated, “We will make it, provided that our country can borrow on reasonable terms. Based on those conditions, our country is not seeking and will not seek financial aid, either from our European partners or from the IMF, which would be our last resort.”

Merkel Says IMF May be the Only Solution For Greece

Papandreou said that Greece wants a decision to be made at the EU summit next week towards establishing a financial mechanism to aid Greece if needed. Papandreou said an EU decision could reduce borrowing costs for Greece making it unnecessary for the nation to turn to the IMF for help. German opposition to EU aid for the Athens government remains fierce. German Chancellor Angela Merkel told the German Parliament that the IMF may be the only answer to Greece’s problems. Expressing investor concerns Simon Derrick of BNY Mellon Corp. in London stated, “The euro is weakening as investors are questioning whether there really is a plan to support Greece. From an investor’s perspective, do you feel comfortable, in these circumstances, being heavily invested in peripheral Europe?”