Pankaj Saharan

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Eurozone crisis : My prediction

By Pankaj Saharan | August 15, 2011 | 1 Comment

As we are seeing in last couple of months that Eurozone is in turmoil along with countries like Ireland, Greece and Portugal already bailed out by European Union members with help of IMF. Many financial analysts are saying that Euro is half-baked because of the fact that it is not sound structurally. For example, some countries suffer an artificially high exchange rate and others an artificially low one. Similar mismatches occur with interest rates. In my opinion, there can be multiple results of current Euro turmoil.

The first worst case scenario would be that the Euro would be dissolved and each country would be back to it’s currency which they were using before joining Eurozone. This will definitely lead to increase in production costs, increase in unemployment because of industry shut-downs etc. but could be become stable in 5-10 years.

The other best case scenario is the Eurozone members collaborate together and help each other in this dark phase. The average annual 3-6% increase in production rate as it is in some member countries and if US economy continues on its decline, the Euro could become the reserve economy of the world.

In my opinion after reading couple of articles regarding the crisis, there are high chances that Euro will break-up. The chances are that the Eurozone will be divided into two parts with each having it’s own currency. One will continue to have Euro as their currency and other will have a new one. But the whole Eurozone would be regulated as now by European Central Bank (ECB) but countries in eurozone will have their main currency depending on which of the two camps they are in.

I think Eurozone would divide into two zones: Northern and Southern. Northern Europe would comprise of Germany (main stakeholder in Eurozone) with the other Northern European countries, which would include the Netherlands, Finland, Austria, Estonia and other Scandinavian countries which are relatively safe and don’t have problems in terms of deficits. On the other hand, we have the Southern European countries, such as Greece, Portugal and most likely Ireland with struggling economies like Spain and Italy.

Putting France in either of the two zones is difficult for now. But I think France might find it’s best possible interests to be put in the Southern Zone depending on how it pushes itself. What happens next remains to be seen with EU still being optimistic about being the reserve economy of the world in future. There are lots of political factors and conflicts of interests that will decide the fate.

Let’s hope for the best and let’s see..

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1 Comments

21 July, 2014 Reply

Excellent read, I just passed this onto a friend who was doing some research on that. And he actually bought me lunch since I found it for him smile Thus let me rephrase that: Thanks for lunch!

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