Financial crisis leaves euro with new popularity
The European currency celebrates its 10th anniversary.
The euro is set to mark the 10th anniversary of its launch in January with Europe's common currency enjoying a newfound appeal as a result of the financial firestorm that swept through world markets this year.
From solid Sweden to ailing ex-communist Hungary, the euro is suddenly seen as potential protection in a time of crisis.
Despite its success in helping to forge European integration, the 15-member common currency has until recently never enjoyed the same kind of affection among Europeans as the national currencies it replaced in 1999, first as a currency for the financial system. Euro coins and banknotes were issued on 1 January 2002.
Now the mood appears to be changing with the world financial crisis exposing those nations that have chosen to stay outside the currency bloc to attacks on their national currencies and markets as the crisis unleashed by the US mortgage meltdown leaves their banking sectors reeling.
"This is the most severe test the euro has faced," said Klaus Baader, Merrill Lynch's London-based chief European economist. "The euro has shown itself to be an effective shield, especially for smaller economies."
Even in Britain, from where some of some of the most effective assaults on the euro have been launched since it was enshrined in the 1992 Maastricht Treaty, a slightly more sober view of the common currency appears to have emerged.
This comes in the wake of the turmoil that has ravished the City of London’s financial district, sent the national economy into a downward spiral, forced the government to mount state-backed bailouts for the banking sector, triggered a growing round of layoffs and sent the pound plunging.
Baader said that the political discussion in Britain has changed, especially as it risks isolation in the European Union as a growing number of member states move toward euro membership.
No one is pretending that after years of mocking the euro, Britain is gearing up to abandon the pound and its claim to maintaining national sovereignty by embracing the common currency, in particular, with a national election looming next year.
But with global economic crunch triggered by months of chaos in financial markets still in its early days, economic life outside the eurozone is starting to look somewhat precarious.
Analysts point out that just over a decade ago, pressures like those that recently hit the Belgian-Dutch financial group Fortis -- or a plunge in property prices such as in Spain and Ireland -- would likely have sent national currencies and capital markets into a tailspin in the face of speculative attacks.
With this in mind, the economic and financial drama that engulfed Iceland in recent months might not have happened if it had been part of Europe's currency union.
"So far European monetary union has worked far better than many skeptics expected," wrote Deutsche Bank economist Werner Becker in a note to clients.
The result has been a rethink among European Union nations such as Sweden and Denmark that have in the past opted not to sign up to the common currency.
Denmark was once considered vehemently opposed to euro membership. But a poll by Denmark's Danske Bank showed the share of Danes supporting euro adoption had risen from 40 percent in October to 44 percent in November.
More Swedes have swung behind the euro, a Synovate poll showed, with 44 percent of people saying in November they would vote yes in a referendum to join the common currency, 9 percent more than in May.
The same is true of the EU's new member states, most of which have kept independent currencies rather than accept eurozone limits on inflation and budget deficits.
Slovakia, its former communist economy transformed into a car industry hub, became the 16th euro nation on January 1.
Interest has now grown in Poland, Eastern Europe's largest economy, where Prime Minister Donald Tusk in October set a 2012 target for euro adoption -- just as the financial crisis struck Europe head-on.
While the required support from Poland's nationalist opposition is uncertain, 55 percent of Poles said in a September poll they want to switch to the euro.
Hungary embraced the euro after emergency loans by the International Monetary Fund and the EU staved off the country's default this autumn. The government hopes to start the membership process in 2009, although analysts believe Hungary could join only by the middle of next decade.
Czech Republic, an economically stronger nation with a euroskeptic tradition, has stayed cautious, saying a global crisis is the wrong time to set a euro target.
"We think that the Czech Republic ... might be coming under some pressure from the recent 'we want EMU as soon as humanly possible' attitude of neighboring countries," said Martin Lobotka, analyst at Ceska Sporitelna bank.
However, the sense of stability that the euro has projected as the financial crisis has taken hold in recent weeks still does not appear to have helped promote the common currency as a safe haven during troubled times.
To be sure, the euro has lost about 25 percent of its value since hitting a record high of more than 1.60 dollars in July, with investors betting on the giant US economy beating the eurozone in recovering from the current economic slump.
But said Chris Turner, head of ING Bank's foreign exchange strategy research, falling currencies could have a benefit for nations such as Sweden and Denmark by boosting exports and consequently helping to lay the foundations for an economic rebound.
Andrew McCathie and Tony Czuczka/DPA/Expatica