Why Hasn’t the Euro Collapsed?
Thursday 23 February 2012
With all the problems that Europe is facing, you could be forgiven for thinking the euro itself ought to be exceptionally weak, says David Johnson of Halo Financial.
Nervousness over the state of the French, Greek, Italian, Portuguese and Irish economies has led to credit ratings downgrades from two of the major ratings agencies, while growth, unemployment and output data is stalling in all but Germany.
With that kind of backdrop, the euro must weaken, right?
Well you might think so, but it hasn’t. The reasons are not entirely clear but a lot of it has to do with the small choice available amongst bad apples.
Of course, the euro is the second most liquid currency in the world, and most reserve and central banks have billions of euros stashed away in the vaults, but the reason for the euro’s stoic stability is that the alternatives are not much better.
The euro may not the most lucrative currency from an interest rate perspective, although a 1% base interest rate is well above the 0% in America, Switzerland and Japan, and double that of the UK.
This is the main appeal; the euro is a little more lucrative than these currencies, but not as susceptible to wild gyrations as, say, Australian or New Zealand Dollars.
The euro is just about average enough to be attractive without being scary.
But it could become very scary if Greece were to exit, or if German or French elections introduced new governments who were not quite as committed to the euro as Angela Merkel and Nicolas Sarkozy.
Managing these fluctuations, ensuring you don’t lose out if the worst happens but can benefit if the market moves in your favour is best done with the right ally; someone with an eye on the market and a wealth of experience.
David Johnson, is a Director from Halo Financial, currency specialists, who will be presenting seminars on each day of the The French Village, A Place in the Sun Live Exhibition, dealing with just these issues.
This article was featured in our Newsletter dated 23/02/2012