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Why do we say that the euro is dying?

You hear it everywhere ... the euro is about to disappear. But why? At last news, the euro stood at U.S. $ 1.24. Considering that in January 2002 (the debut of the euro), the currency was worth approximately U.S. $ 0.88, I do not see the drama. In the words of leaders of European finance, the problem is not its current value (the euro worth U.S. $ 1.24 last year too), but rather the speed at which the currency has fallen.

How does the establishment of a currency for a country?
Before going to see what happens with the euro, explain how the establishment and maintenance of a currency operating in a context where one country adopts. Consider the Canadian dollar. That dollar is effective only in Canada and is governed by the Bank of Canada. The Canadian dollar is affected by two kinds of factors: internal factors and external factors. When evaluating a currency, is by comparing it to another. So inevitably, the value of $ CDN is influenced by another currency (external factors).

Canada does not control external factors, but can control the internal factors. Internally, the dollar value of a country is influenced by supply and demand. The offer is the country that makes it. The application is foreigners who want the Canadian dollar. Here is a list of economic factors that would increase the Canadian Dollar

• increase foreign tourism in the country (higher demand)
• Lower Canadian visits abroad (reduced supply)
• Exports Rise (increased demand for pay of $ CDN)
• Lower imports (Down the offer of $ CDN for pay)
• Reduction of government debt (reduced supply)
• Rising interest rates (higher demand)
• Reduction of currency in circulation ( decrease in supply)

course, all points would reduce the currency reversed. If Canadian authorities (banking and / or government) wanted to control (we could discuss at length the ability of authorities to effectively control a currency. Speaking here as a synonym for control supervision), what are their options?

The first 4 points are a bit out of control authorities. In extreme cases, governments could tax the imports / exports quite significantly, but such action would damage the local economy long term. There remains only the last three points, one of which is under government control. The last two are the responsibility of the Bank of Canada.

And what's different in Europe?
In Canada, if the value of our currency was becoming a serious problem, the government would act with the Bank of Canada. In Europe, if the situation becomes problematic for the euro, European Central Bank will act with 22 countries. Everyone should take the same side at the same time.

The problem in Europe is not the value of the euro, but his downfall (some see this fall as being the result of speculation, I rather think that the euro was heavily overvalued for years). To stop, the authorities should increase its value. However, as we saw above, the Bank controls interest rates and the amount of money in circulation. Governments control public debt.

To avoid a "disappearance" of its currency, a country must avoid the need for the machine to print money to pay his expenses. Zimbabwe has so abused that inflation was 100% at 24 hours in the last calculation (calculate inflation in Zimbabwe is now a crime!). This is one of the perverse effects of tests in a currency (and why I mentioned earlier and non-supervisory control).

That leaves interest rates and government debt. Interest rates have an impact on the real economy. Raise rates pushed up the value of the currency, but decreases economic growth. That's why banking authorities intelligent (as in Canada) use interest rates to control inflation. That leaves only

debt public. Europe has long been known that the debt was what could bring down the currency and undermine the economic stability of the entire region. Therefore, all countries in the euro area have agreed to limit the annual deficit to a maximum of 3% of GDP. The problem is that it was a guideline . That was not the force of law and several countries irresponsible (sorry for the Greeks and others, but you do not deserve to be part of the euro area) are ignored. For example, the deficit in Greece is more than 4% per year for 5 years. In 2009, it reached 12% and this year is expected to reach 9%.

Europe has understood that there are countries where fiscal discipline is wrong (I wanted to say no to shit, but I'll be polite) and table currently on a law that would force all countries to respect the measures in place. There is even talk of strengthening these measures (because the debt problem is a serious problem in Europe).

And why not just leave these countries in the Eurozone and leave them with their problems? Because that would say that the single currency has been a failure. And we must admit that Germany likes it. A weak currency allows it to export to the ton!