The Hewitt Times

December 5, 2011: The clock for the euro is ticking, and ferociously at that. After its introduction just over a decade ago to world financial markets as an accounting currency, there is now less than a week until the euro’s potential demise will be either confirmed or discarded.

The highly anticipated fate of the euro will be decided sometime before, or on, December 9, 2011, the date of the next major summit meeting of eurozone leaders. A newly emerging plan to stabilize the currency was hinted at by the chief of European Central Bank: “The ECB’s monetary policy is constantly guided by the goal of maintaining price stability in the euro area over the medium term – and this applies to price stability in both directions.” The phrase ‘both directions’ refers to both the inflation and deflation of the euro.

Due to the lack of an effective management protocol for the euro, Europe’s financial turmoil might turn into equally frightening currency turmoil. People are beginning to worry. A financial strategist and global head of currency strategy at Brown Brothers Harriman, Marc Chandler, wrote, “European officials have squandered this confidence, and like toothpaste coming out of a tube, it is difficult to put it back in.”

Olli Rehn, Europe’s Economic and Monetary Affairs Commissioner, who holds a lot of responsibility to come up with a rescue plan successfully and expediently, made a startling prediction of the euro’s looming demise. This shock of a prediction brought many governments, including the U.S. Government, together in oder to create emergency plans for a probable economic event of plausible catastrophic results.

But can the Euro be saved? The likelihood is becoming slimmer as the minutes pass by.

First, eurozone leaders will have to somehow put aside their deep-rooted political differences to figure out how this pressing matter can be solved. The chances of nations like France, Italy, and Germany forgetting their differences is unlikely at this point. If this happens, a short-term plan, along with a huge amount of money, will first have to be initiated to allow countries short on money to get out of their current sticky situations. Then, a long-term plan for how the euro can be preserved  and how it will flourish will be rendered.

Despite these challenges, some believe the solution has already been made. James Surowiecki, journalist and business and finance columnist for The New Yorker, explained that the solution is simple: the European Central Bank must “publicly commit to backstopping debt” of various countries. Surowiecki explains that the European Central Bank has the ability to make this happen but hasn’t made any steps toward it yet. Obstacles in the way seem to be ideological and psychological: concern and anxiety with the possible risk of inflation.

Currently, the preservation of the euro is not hanging onto much. Though some hints of light are seeping into the windows of possibility, skepticism seems to be an overruling factor of the euro’s impending termination. As for now, the question of the euro’s survival is still unanswered.

UPDATE (December 9): Though much of the euro’s future is still unclear, what is clear is its survival. Today, eurozone leaders reached somewhat of an agreement. A “fiscal compact” among the 17 nations of the eurozone, along with nine European Union members, will be developed further in the years to come. This will involve strenuous planning of budgets of these nations in order to pay off debt and increase the euro’s value. Despite Britain’s refusal to take a part in this reformed treaty, the plan is still moving on. Although the euro-crisis is still far from over, small steps toward regaining the value of the euro have been taken, lifting some weight off of the shoulders of Europe.

UPDATE (December 29): As more and more work goes into fixing this crisis, the question stirring now is asking why it all happened. Reasons are beginning to emerge. First, ‘easy’ money and low interest rates that came with the euro led “peripheral states on a path of profligacy,” or a path of wastefulness of resources. However, the most probable factor that caused the euro’s demise is the flawed concept of the euro itself: a single currency over a large group of countries, which each stuck to supreme authority over their individual economies.

UPDATE (December 30): The most recent news on the euro crisis is worth celebrating in the new year. German finance minister, Wolfgang Schaeuble, is saying with confidence that the eurozone’s problems will be solved within the year of 2012, stating, “I think we will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilized the eurozone.” Germany, Europe’s largest economy, has a large role in helping to fade the crisis. It has supported the strategy of getting governments to “embark on often-savage austerity measures to reduce deficits,” but opposed to matters like issuing jointly backed eurobonds, which leads to implications of how the solution to this situation will not be a quick one. Finally, liquidity, or the availability of cash, which usually spurs economic growth, has returned to the European Central Bank. What seemed like a never-ending crisis has finally produced a glimmer of light at the end of this long tunnel, and things are looking up for the eurozone, at least for now.

UPDATE (January 22): Despite somewhat abundant pessimism in late December and early January, the wrath of the euro crisis has subsided, and actions of the European Central Bank have made the bank an unlikely hero in this frantic downfall of the euro. The ECB did what its leadership stated it never would do: flood the financial markets with euros. The ECB has stated that it will buy 20 million euros per week, which, throughout the year, can potentially be enough to buy up two-thirds of the 1.25 trillion euros in eurozone debt due at the end of 2012. It will also grant all eurozone banks unlimited access to low interest liquidity loans lasting three years each. The actions of the ECB alone have made what seemed like a certain dissolution of the eurozone into one that is now highly unlikely. The recession itself, of course, is still very pertinent, and will still remain, along with definite volatility. However, the worst of the eurocrisis appears to be over, for instead of damaging the financial industry, the European crisis may take a political tone in 2012.