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Drawing from his 15 years of experience and expertise in the forex industry, Andrey Dashin takes a look at the current economic crisis and underlines some of the key factors which have affected the eurozone.
By Andrey Dashin
Curiously enough, what the future has in store for the euro is both predictable and unpredictable at the same time. So many predictions are being made on the events that are likely to follow in the eurozone in the near future, but ultimately all thoughts are speculative. No one can assert with confidence exactly what will happen to the euro; we can only discuss its current state, the effects the latest economic events have had on it, and share our own personal outlook.
It is common knowledge that for a long time now, the eurozone crisis has made the euro very sensitive and the crisis that has been going on in Cyprus in the past months has only amplified the sensitivity of the currency even more. The euro has witnessed anticipated volatility in the forex market in recent months, whilst depositors pulling their money not only out of the island but out of Europe in general, has also played an important role in weakening the currency. The euro has, however, witnessed dramatic drops in the past and has always recovered with time. Its popularity in the forex market and the fact that the European economy is one of the world's most significant, keeps the loyalty to the eurozone alive. Perhaps the euro has lost some of its previous glory, but in times of global economic crisis, there is little room for glory. The loss of its previous status has been a natural consequence of the overall situation of the European and global economy.
The collapse of the eurozone has been avoided time and time again, and despite investors' fears, the fact that eurozone officials remain dedicated to seeing it through to survival is very encouraging. There are those who believe that Europe has allowed Cyprus and Southern European countries to reach the point they are at now, questioning the capability of the big European powers and the feasibility of a single currency. There will always be arguments for and against such a theory, but no matter the case, Europe cannot now wave a magic wand and erase the problems which have accumulated over the years in each European country that is in turmoil. The fact that leaders remain optimistic is an indication that they will not allow a member nation to go bankrupt or to exit the currency. How many times did we read articles declaring with certainty that Greece was going to default from the euro? It's been a while, and no such thing has happened yet. If this scenario was ever to become a reality, then of course the reputation of the EU would be damaged and the euro would be shaken. All in all, the scenario is just as unlikely now as it always has been.
Regarding the chasm that has been created between North and South Europe during the financial crisis, I dare say that it is not something new. The cultural differences between the North and the South and the differences in economic status from country to country have always created gaps not only in Europe, but in the entire world. Northern European governments often say that when it comes to paying for the rescue of Southern European countries, they will not unload such a burden on their own taxpayers. In retaliation, the South argues that the North has benefited from the crisis, as lower borrowing costs have saved money for the Finnish, German and Austrian governments. Unfortunately, this at times sends out a message of division and instability, undermining Europe and the eurozone. To put it rather realistically however, such attitudes are often a huge part of human nature and natural expression, especially in times of great frustration; I sincerely doubt that Northern Europe is more willing to see the demise of the eurozone in favor of helping their fellow Europeans.
One cannot with certainty predict what will happen to Europe, the euro, and those countries which have sought a bailout. I, for one, am definitely no seer. What I do know all too well is that we can predict all we want, but there are greater dynamics in this world and all we can do, in essence, is prepare for all eventualities so that when events do unfold in whichever direction, we react appropriately and accordingly and not in a knee-jerk manner which ultimately undermines and worsens the euro's standing.
Andrey Dashin is founder of ForexTime Ltd (FXTM), Chairman of the Supervisory Board and shareholder of the Alpari brand. The content in this article comprises personal opinions and ideas and should not be taken or misunderstood as investment advice.
