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Euro on the Verge of (Dis) Integration?


Code : ITF0021

Year :

Industry :General Business

Region : :Europe

Teaching Note:Available

Structured Assignment : Available

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Introduction: Euro, the common currency of European Union (EU), was adopted in 1999 and its value was set at US$ 1.183 . Gradually it expanded its base even outside EU and eventually became the second biggest currency, next only to the American-Dollar (Dollar). At the beginning of 2005 the currency traders4 preferred Euro to the Dollar as the United States (US) was facing a ballooning current account deficit. The Euro was being traded at a peak of $1.355 . However, in June 2005 it dipped to a thirteen month low below $1.196 following the French and the Netherlands’ rejection of the EU’s constitution7 in a referendum. In spite of the huge current account deficit of the US, the currency traders were buying the Dollar and selling the Euro. The future of the Euro has fuelled speculation of financial paralysis and political uncertainty in Europe. Euro-skeptics predict that Euro, the offspring of EU,might followthe constitution into oblivion as sooner or later countriesmay go back to using their own national currencies. The Euro has been blamed for the decline in the export competitiveness of the EU member nations as its appreciation against theDollar had adversely affected the export revenues. The Italianministers have even called for a return to the Lira8 . For Dollar it means regaining unrivaled foreign reserve currency status. However, analysts do not expect Euro to dip further because the Dollar had been overbought9 . Euro-enthusiasts point out that with more central and eastern European countries keen to join the 25-nation bloc, the EU ismore likely to grow than shrink.

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