The Situation with the Euro

by Darwin on August 17, 2010

  Over the past few months the European Union has had to cope with many of the countries that comprise it dealing with debt issues. Greece has been the most covered, with most major cable news channels showing the riots and turmoil that is going on within the country. These riots are due to the fact that the Greeks were promised many benefits from their government, which they will not receive.

The Greek government could not give it people what they were promised because they could not raise enough funds through the taxation of the people. For years Greece had been running a budget deficit, and no one was all that concerned. Greece has been known to have many of its citizen lie on their taxes to avoid paying them. When this type of behavior is let slide, it ultimately leads to the measures that are being taken now by the E.U. and other agencies to essentially bail them out.

These bailouts are just loans, given to them at a favorable interest rate, so that the Greeks are able to pay for day to day operations. Once the Greeks start to cut back on their government spending and force those who do not pay taxes to pay their full share, they will emerge a much stronger country financially. This process will take many years to come full circle but there is hope that the Greek government can get its problems under control. Once under control the Greek economy will return to a normal, where spending and revenue are in line and the people are happy.

Greece is not the only country in debt. Spain and Italy are two other countries in the E.U. that are also facing issues trying to balance their budgets. Like Greece they are spending too much and not taking in enough revenue. They over promised and under delivered, and it will come back to haunt them over the next few years. If these countries all need bailouts by the E.U. and International Monetary Fund, then there is a chance that all the politicians in Europe might have no choice but to dissolve the Euro as the main currency that is accepted through Europe.

This would not be beneficial to the major exporters like Germany. If all these countries that once comprised the E.U. and used the Euro were to fall by the wayside it would have ramifications. If they became so indebted that they could not pay back loans they were more than likely be asked to leave the E.U. They would then revert back to their old currency used prior to the Euro being introduced.

  If this were to happen the Euro would strengthen because only the fiscally strong European countries would be using it. The countries that were just let go from the Union would have a weak currency because of their debt issues. This would hurt trade as it would cost far too much for the people living in countries that are not using the Euro to buy good from those using the Euro.

The largest economies like Germany would not get demand for their exports from the countries that were to leave the European Union. This would then hurt the German economy as their products would not be bought by the weak European nations. At the moment Germany is working closely with the IMF to help Greece and others, because if Greece were to revert back to its old currency and devalue it, German products would be too expensive for most to buy.

Currency traders have been watching this situation closely, as it would impact the Euro if Greece and other countries left the E.U. The professional and retail foreign exchange traders who are watching this situation are buying and selling the Euro in their forex account. These traders are making daily assumptions on the future strength of the Euro, and positioning themselves in case something big happens. And as an additional resource, here’s how to manage damaged money.

Forex trading can be a very profitable business for many professional and retail investors. When there is big news revolving the debt issues of countries, the currency markets will be the first indicators that the situation is getting better or worse. Paying attention to the foreign exchange market will make it clear if the E.U. as we know it will stay intact or if future debt issues will slowly start to break it apart.

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