The document discusses the future of the Euro currency. It examines whether the Euro is facing a rebirth or demise amidst the ongoing financial crisis. It analyzes the weaknesses within the Eurozone that have been exposed by the crisis. It also discusses the need for further European financial and political integration, including a fiscal union, for the Euro to survive long term. However, it notes that achieving this unification faces significant opposition from Germany. The future of the Euro thus remains uncertain and dependent on whether more unified governance can be established within Europe.

1. Financial Markets
Athlone Institute of Technology
Karen Guest
THE EURO CURRENCY
Time for a rebirth or the death of the single currency?
STUDENT: ENRICO CAMPA
ID NUMBER: A00150755
DATE OF ISSUE: 20 MARCH 2012

2. Table of Contents
FOREWORD ......................................................................................................................................
CHAPTER I .........................................................................................................................................
INTRODUCTION ........................................................................................................................... 1
THE EUROPEAN SITUATION ...................................................................................................... 1
CHAPTER II ........................................................................................................................................
THE EURO AND THE CRISIS........................................................................................................... 1
THE WEAKEST EUROZONE ........................................................................................................ 2
CHAPTER III .......................................................................................................................................
THE FINANCIAL UNION ................................................................................................................ 2
CHAPTER IV ......................................................................................................................................
EXPECTATIONS AND RATING ........................................................................................................ 2
CHAPTER V .......................................................................................................................................
GERMANY AND EU....................................................................................................................... 3
CHAPTER VI ......................................................................................................................................
THREE CONDITIONS TO SURVIVE ................................................................................................. 3
HISTORIC CROSSROADS ............................................................................................................ 4
CHAPTER VII .....................................................................................................................................
ALEA IACTA EST- FISCAL FEDERATION .......................................................................................... 4
CHAPTER VIII ....................................................................................................................................
THE KEYWORDS FOR A REBIRTH: STABILITY AND FEDERALISM..................................................... 4
APPENDIX ....................................................................................................................................... 6
REFERENCES ................................................................................................................................... 8
BIBLIOGRAPHY ............................................................................................................................... 9

3. On 1 January 2002, the single currency came into circulation, created in 1999. The media euphoria that
accompanied it then collides with the doubts that now raise a currency dreamed in Paris, designed in
Brussels, printed in Frankfurt. To the extent that investors and companies are wondering: will the euro or
not to turn off its eleventh candle?

4. 1.1 Introduction
Many generations, in Europe, have grown with the dream of a single currency and a single market. When
the Euro has made its first appearance, a decade ago, few would have thought such an evolution as the
current one. The Euro was welcomed by the majority of the peoples of Europe as a great opportunity to
integration, to the movement of goods and people and to the economic and social development. In simple
words, a chance of prosperity that had to be taken without hesitation. Today we must regretfully admit
that things did not go as we thought. The Euro has actually brought several advantages, but has deeply
modified the balance of European economies, which have developed a truly systematic crisis.The crisis of
the Euro is a currency crisis today, but also a crisis of Nations which constitute the European Union, with
repercussions on global economic equilibrium; serious dichotomies and contradictions have arisen within
the EU following the introduction of the single currency, have created a situation which limit must be found
urgently.
1.2 TheEuropean Situation
Over the past 14 months, the eurozone politicians have adopted a "bailout" after another, found
themselves in frantic summit meetings, and have debated about weak compromises and increasing risks.
For the same period they have declined to come to an important conclusion: specifically and in any case
you can not go on like this. The old euro no longer exists as original intention and the International
Monetary Fund does not work. Therefore we need an alternative plan, a plan B. The biggest obstacle to a
community management of the crisis is that countries that have financed the "bailout" lack of democratic
legitimacy. When the going gets tough, like now, the decisions cannot be taken by EU institutions
democratically legitimized in some way, but in meetings more or less secret and exclusive.
An abyss divides the continent, pushing the opposite banks of the countries that need more money, and
countries that are expected to pay. The Greeks are angered by the Germans; the Germans are nervously by
Greek, Portuguese, Spanish and Italian: the political project of European unity is likely to end in a political
diatribe.
2.1 The Euro and The Crisis
Created with the aim of uniting Europe for ever, the euro became the biggest threat on the future of the
continent. A collapse of the monetary union would be a hard landing for Europe, could make it back by
decades, giving a blow from which it may not recover more, especially now that its position is already
compromised by the rise of Asian economies with rapid growth.
This explains why European politicians want to defend the euro, and why they are endorsing a "bailout"
after another. They take action to buy time, hoping that the markets calm down, and that effective reforms
are enacted.
In practice there are two possibilities. The first solution is radical: give up the rope and let the countries in
trouble will defend themselves. The second is more pragmatic: getting by as best they could, although with
less efficiency, and hope for an improvement. Neither option is cost free.
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5. 2.2 The Weakest Eurozone
Despite all the "bailout", i.e. the measures and the risks they took on the rescuers, the weak euro countries
find themselves exactly where they were a little over a year ago: on the brink of the abyss. The premiums
for the risks of their bonds have been reached new records. If Greece slides into uncontrolled bankruptcy,
in fact, investors may refuse to invest their money in other euro zone countries in critical situation and
hence the other banks could still fail, triggering a chain reaction.
But the crisis will not stop with the withdrawal of Greece. Indeed, things could get worse and worse. In fact,
the Greek debt will remain in Euros and that would transform it automatically into a foreign currency debt:
the amount in the new national currency would increase rapidly, because it would have devalued the
drachma. The Greek lenders will be unable to meet their obligations. In turn, banks will be under pressure,
both in Greece and elsewhere in the euro area. And once again it would be necessary to study costly
"bailout" for the banking sector. At the end of this destructive trend, therefore, monetary union could
break up; break itself into a block of hard currency and a group of countries with much weaker currencies.
3.1 Financial Union
The alternative to breaking the monetary union can hardly be considered less advisable, since it leads
directly to a union of transfers. After a year of continuous "bailout" for Greece, we are already well
advanced and beginning of 2013 the planned permanent rescue fund will represent a step forward along
this dangerous path.
At the end, might as well go this way: countries in crisis with the deficits will require funding from the more
stable countries of north. What was once billed as a loan will turn into a subsidy, and as such should not be
repaid, or interest will be discussed. The European monetary union could become a financial union, debtor
countries could become recipients of subsidies, then in a situation of dependence on contributions from
neighboring countries stronger economically.
4.1 Expectationsand Rating
The expectations are, however, in rapidly changing, so also the acceptance of a violent end. The impulse of
the enormous liquidity of the European Central Bank will not resolve the problem. I would not
underestimate the importance of that decision. The ECB has avoided a credit crunch, and the merit goes to
recognized. The profits of an unlimited long-term capital may even have a marginal impact on banks'
willingness to participate in auctions of government debt. If we are lucky it might help us to overcome the
intense period of rollover debt in the spring. But a shower of liquidity cannot however solve the underlying
problem of a lack of macroeconomic adjustment. This, then, is the implicit conclusion of the rating review
of recent months: we have gone beyond the point at which it was possible to bring solution to the problem
with a technical move. The available tools are almost finished.
Ultimately, writes Corriere della Sera, the "downgrading of mass" is a declaration of no confidence against
the euro, which has strong political reasons, from "a country has always been skeptical about the fate of
the single currency".
"The crux is that these judgments, which should serve to alert investors informing
them that have not yet perceived the risks, in fact, come when those concerns are
now widely available in markets. [...] "
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6. This is the message, not new; it is strengthened by the opinion of Standard & Poor's: Europe's has a deep
crisis that has no easy solutions. The road ahead is long and full of pitfalls.
5.1 Germany and EU
While Greece is close to default, while France, Italy and Spain have suffered a rating downgrade, while
negotiations in recent months on the tax treaty are aground, the euro is dangerously close to abyss
dragged by a force more and more evident. The real cause of the disaster of the euro is not France, not
Italy, and even Greece: is Germany.
The following article explains the start of the causes.
“The euro is not a strange coin. Strange were the fiscal imbalances that
have led to the creation of the eurozone. Interest rate swaps and cross-
currency swaps made by governments for returning in the Maastricht
criteria were an example of a project that had its beginning of an incurable
disease. It's not a question of Greece, whose accounts have shocked
Brussels in recent months. In the years 1995 to 1998 almost all
governments have used these tools. Only some, like Germany, have used
them better than others.”
The underlying problem is not in the efficiency of the German economy, although it contributed to the
imbalance of economic fortunes, but in the behavior of the German political class and central bankers. Not
only the German government has consistently opposed the only measures that could bring the euro crisis
under control but it is also responsible for almost all the reckless policies of the eurozone, the high interest
rate increase applied last year by the ECB, to excessive demands in terms of austerity and losses for the
banks that now threaten to expose Greece to a chaotic default. Germany could suffer a strong backlash if it
continues to reject measures that would alleviate the financial pressures faced by other members of the
eurozone, for example the issue of Eurobonds with joint guarantees. Meanwhile, many leading economists,
former central bankers and top business representatives strongly advocate withdrawal from the euro on
the assumption that German policies are incompatible with those of other member countries.
6.1 Three Conditions To Survive
The survival of the euro depends on three conditions.
 The first, on which Germany continues to insist, is the imposition of fiscal discipline, which can be
enforced only by the centralized control of the EU on tax and spending policies of national
governments.
 The second is a joint European responsibility for the debts of national governments and bank
guarantees. This mutual support is actually the flip side of fiscal federalism but it is a "quid pro quo"
(something for something) that the Germans have consistently refused to even discuss.
 The third condition is the help of the ECB to the federation tax, comparable to the aid money
provided by central banks to public debt markets of the United States, Great Britain, Japan,
Switzerland and all other advanced economies.
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7. It is precisely because of this help of central banks to public bond markets that the United States,
Britain and Japan were able to finance deficits much larger than France and Italy without fear of a
credit downgrade.
6.2 Historic Crossroads
The fundamental problem of the eurozone is that Germany is fully concentrated on the first condition,
forcing other governments to adopt austerity measures unrealistic and refusing to discuss the joint
guarantees of debt and central bank intervention. Due to Germany's intransigence on these two issues, the
new Treaty on the euro was adopted last months, as a three-legged stool that rests on only one.
Accordingly, we must conclude that the euro is bound to disintegrate? Not necessarily, and for two
opposite reasons. The alternative more optimistic view that the nonsensical "tax treaty" has been a simple
diversion while Angela Merkel has prepared the German public and political opinion to compromises to be
established on the guarantees in the future while the ECB committed a reduction in Anglo-Saxon style.
According to the pessimistic alternative, however, Germany would actually determine to avoid the
monetary and fiscal easing is the only chance of salvation euro. In this case the other members of the euro-
area will soon be facing a historic choice: leave the euro will have to expel or Germany? And in the second
case, it will simply ask you to leave or, as is more likely, by agreeing among themselves on monetary and
fiscal strategy that results in Germany to the point that whether you choose to leave?
France, Italy, Spain and their partners in the euro have the means to save the euro, and in doing so avoid
the hegemony German economy.
The only unresolved question is whether they have enough confidence in themselves and the economic
awareness of wanting to build a coalition against Germany.
In any case, European leaders have to stop to discharge the euro crisis on the world economy, the banks or
the wastage of previous governments.
7.1 Alea iacta est – Fiscal Federation
The dawning awareness that the real "different" in the euro area is Germany makes it easier to understand
the puzzling swing of the Euro crisis and how it might end up. As the Euro-skeptics argue, after all there are
only two possible conclusions for the design of the single currency. Or the euro falls apart, or the euro area
is transformed into a fiscal federation and political union.
About this split we are now fully aware. One wonders, however, what is meant exactly with the definition
of "fiscal federation". And this is the origin of German responsibility for the current crisis.
8.1 The Keywords for a Rebirth: Stabilityand Federalism
We have suffered for many years a strong appreciation of our currency, which could put European
production market, without giving out actual benefits to consumers, i.e. to European citizens.The fact is
that the euro is basically treated as the German mark, but that States adopt this coin are not all like
Germany; also the Maastricht rules are wrong, because if it is true that the stability of the currency is a
value, it is also true that it is a tool, not an purpose, and that if you need to stimulate the economy, you
must be able to do so.
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8. Therefore, the defect is the lack of true federalism, in the absence of a European decision-making system
and capable of adapting to the circumstances; the stop imposed by Chancellor Angela Merkel will prove
unsustainable, under penalty of a real European recession that, eventually, will hit the same Germany. In
short, if those who wrote the treaties in Maastricht he thought that these rules, the famous parameters,
"conditio sine qua non" for the acceptance of Germany – at that time, however, it had much asked the EEC
for the fall of the Berlin wall – they weren't so dangerous, he is wrong.The Germans then, they found it
necessary to reduce them and violating the rules of competition to move to rescue their banks as a result of
the crisis in 2008 imported from USA (but present in its causes, even in Europe), daughter of exaggerated
conception of financial economics, while you should never forget that without the term medieval meaning,
"pecunia non equal pecunia" (money does not equal money) that the wealth of a nation derives from work,
research and innovation, and not financial speculation.
The solution put forward in recent months by Germany and France, namely the consecration of forces
remained to rebuild national currencies and thus save the banks and savers, appears more than a response
to the crisis, a veritable incitement to suicide, which would, for example, the exchange of securities in euro
emitted from Italy with a reborn of Lira, if not immediately, subject to devaluation, it could empty all
pockets, particularly small savers, who could be holding a fistful of waste paper; and likewise could happen
to French, Belgians and, in the long run, to the Germans.
It is obvious, however, that the problem is very serious, but it is equally obvious that does not seem
possible to go back, and that we must, however, continue, at least for acceding to the euro, quickly on the
path of federalism that foresees the adoption of efficient decision-making mechanisms, taken by majority
vote, to bring the economic, fiscal policy and that, given that you start the process, also foreign and security
policy by limiting the power of Member States which, in their majority, they have not well deserved in
these situations even for a long time.
The German Chancellor, and her State, must understand that this is a bitter pill to swallow, but also the
medicine that will enable Europe and Germany too, to be a true great economy of strength and peace.
«The moral issue exists since a long time, but now it has become the first and essential political question
because its solution depends the recovery of confidence in the institutions, the effective governance of the
countries and the holding of democratic regime. »
(Enrico Berlinguer, from an interview to “La Repubblica” on July 28, 1981)
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9. Appendix
Bailout: In economics, a bailout is an act of loaning or giving capital to an entity (a company, a country, or
an individual) that is in danger of failing, in an attempt to save it from bankruptcy, insolvency, or total
liquidation and ruin; or to allow a failing entity to fail gracefully without spreading contagion.
International Monetary Fund: The International Monetary Fund (IMF) is an international organization
that was conceived on July 22, 1944 originally with 45 members and came into existence on December 27,
1945 when 29 countries signed the agreement, with a goal to stabilize exchange rates and assist the
reconstruction of the world’s international payment system.
EU: The European Union is an economic and political union or confederation of 27 member states which
are located primarily in Europe.
Bound: In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and,
depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the
principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with
interest at fixed intervals (semi annual, annual, sometimes monthly).
Drachma: Greek currencies introduced in 1832 and the last replaced by the euro in 2001.
Deficit: A government budget deficit is the amount by which some measure of government revenues falls
short of some measure of government spending.
Debtor: A debtor is an entity that owes a debt to someone else. The entity may be an individual, a firm, a
government, a company or other legal person.
ECB: The European Central Bank is the institution of the European Union (EU) that administers the
monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central
banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,
Germany. The current President of the ECB is Mario Draghi, former governor of the Bank of Italy.
Capital: The capital generally refers to financial wealth, with particular reference to the one used to start
or maintain a business.
Macroeconomics: is a branch of economics dealing with the performance, structure, behavior, and
decision-making of the whole economy. This includes a national, regional, or global economy.
Standard & Poor’s: is a United States-based financial services company. It is a division of The McGraw-Hill
Companies that publishes financial research and analysis on stocks and bonds.
Tax Treaty: Many countries have agreed with other countries in treaties to mitigate the effects of double
taxation. Tax treaties may cover income taxes, inheritance taxes; value added taxes, or other taxes.
Interest Rate: is the rate at which interest is paid by a borrower for the use of money that they borrow
from a lender.
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10. Austerity: is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and
public services provided. Austerity policies are often used by governments to reduce their deficit spending
while sometimes coupled with increases in taxes to pay back creditors to reduce debt.
Eurobonds: are debt investments whereby an investor loans a certain amount of money, for a certain
amount of time, with a certain interest rate, to the eurozone bloc as a whole, which then forwards the
money to individual governments. Eurobonds have been suggested as an effective way to tackle the
European sovereign debt crisis though they remain controversial.
Eurozone: is an economic and monetary union of 17 European Union member states that have adopted
the euro as their common currency and sole legal tender.
Maastricht Treaty: was signed on 7 February 1992 by the members of the European Community in
Maastricht, Netherlands. On 9–10 December 1991, the same city hosted the European Council which
drafted the treaty. Up on its entry into force on 1 November 1993 during the Delors Commission, it created
the European Union and led to the creation of the single European currency, the euro. The Maastricht
Treaty has been amended to a degree by later treaties. For details of the content of the treaty, as well as
later amendments by the treaties of Amsterdam, Nice and Lisbon, see the treaties of the European Union
article.
ECC: was an international organisation created with a view to bring about economic integration among its
six original members—Belgium, France, Germany, Italy, Luxembourg and the Netherlands.
Enrico Berlinguer: was an Italian politician; he was national secretary of the Italian Communist Party
(Partito Comunista Italiano or PCI) from 1972 until his death.
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11. References
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http://www.corriere.it/editoriali/12_gennaio_14/rating-editoriale-massimo-gaggi_7408058e-3e79-11e1-
8b52-5f77182bc574.shtml [Accessed 2 March 2012].
Goria, F. G.,(2011). L’Euro, questa “strana moneta” ci ha salvato la vita.Available:
http://www.linkiesta.it/italia-euro [Accessed 5 March 2012].
Scalfaro, E. S., (1981), Intervista a Enrico Berlinguer, La Repubblica., SOURCE NOT AVAILABLE.
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