Doom scenarios over euro's future

3rd June 2005, Comments 0 comments

3 June 2005, AMSTERDAM — Doom scenarios about the future of the euro are being heard in France and the Netherlands after both nations rejected the EU Constitution in recent referendums.

3 June 2005

AMSTERDAM — Doom scenarios about the future of the euro are being heard in France and the Netherlands after both nations rejected the EU Constitution in recent referendums.

The president of the Dutch reserve bank DNB, Nout Wellink, has dismissed the speculation as "nonsense", while German Finance Minister Hans Eichel claims such talk is "irresponsible".

But the word is out: after two 'no' votes and a persistent economic malaise, doom and gloom scenarios are being heard about the future of the euro, Dutch newspaper 'De Volkskrant' reported on Friday.

"It is no longer unthinkable that the euro will bust," Leuven University international economics professor Paul de Grauwe said.

Underpinning his assertions, a professor with the European University in Florence, Rick van der Ploeg, said the present political reality could lead to the end of the euro.

Opponents to the euro, including Amsterdam University economics professor Sweder van Wijnbergen, warned in the 1990s Europe could not have a single currency because the economies of the various countries were so different. A single currency would also require a political union, he said.

Supporters of the currency said a political union would arise naturally due to the introduction of a joint currency.

However, De Grauwe said political integration appears to be dead after the no votes in the Netherlands and France, despite the fact "a political union is necessary for a healthy euro".

Van Wijnbergen says the growth rates of European economies are still widely different and it is no longer possible for individual nations to maintain different monetary policy or exchange rates to buffer economic imbalances.

If EU workers relocated to regions with good economic growth, economic differences would level out. But labour mobility does not and will never exist, Van Wijnbergen claimed.

However, he rejected the overnight dismantling of the euro due to the high costs involved and Van der Ploeg said the joint currency can still be rescued. This would depend on France and Germany reforming their labour markets, he said.

[Copyright Expatica News 2005]

Subject: Dutch news

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