Shalom Life | August 21, 2014

Euro: Speculation or Opportunity?

The Euro dilemma.

By: Yosef Tastassa

Published: November 24th, 2010 in Business » World

Euro: Speculation or Opportunity?

European History in brief

Let's go back to the history lessons in high school. Europe is probably the origin of many North Americans they crossed the Atlantic Ocean looking for a better life and better opportunities. Many left the continent for political reasons, others for religious reasons.

The Thirty Years' War, Hundred Years' War, the continuous struggle between France, England and Spain, World War I, World War II and other smaller conflicts are a part of the continent's violent history.

After World War II ended on May 8, 1945, the leaders of the continent said that the nations have suffered enough and it is time for a long and sustainable peace.

The European Union

Peace did come and yesterday's enemies became today's partners. 50 years after the war ended Europe was ready to unite. A parliament was established, laws and regulations were agreed upon, and finally the monetary system started to use the same currency – The Euro. It became official on December 31 1998, and bills and coins entered the market three years later in January of 2002.

All for one and one for all

The German Mark, the French Frank, the Spanish Peseta, the Italian Lira and a total of 19 currencies disappeared from the market. You can now use the same currency all the way from Portugal in the west to Cyprus in the east – amazing.

Cracks in the system

All European countries found themselves under a mutual guarantee in the financial markets. The European Treaty defines exactly how countries in the EU should manage their budget and how they report to the European Central Bank.

As we all know, regulations and theory are one thing but reality is another. It started with concerns about fiscal and monetary policies in some of the EU countries. Then we heard of Portugal, Ireland, Italy, Greece and Spain who got the notorious nickname PIIGS.

The huge deficits and fiscal failures in the weak countries are a burden to the stronger ones (Germany, France). Instead of enjoying their profits, the strong countries find themselves subsidizing the weak countries under the soft name of "assistance package"

The small citizen is less politically correct than its leaders. No German understands why the money they earned is sponsoring the lazy Greeks or the irresponsible Irish.

The future

The future is very uncertain. Unless governments in the EU find effective ways to put the continent back into stability, it is possible that the monetary union will not exist that long then the German Mark and its colleagues will be back from their graves. In this case the continent will go through a monetary storm with the Euro in the middle of it.

Speculations and Opportunities

In the short term, it seems that the monetary crisis in Europe will worsen. Spain and Portugal are the next countries on the bad list. If and when they call for help, the Euro will probably lose value by a large percentage.

If an investor believes that the EU will overcome its problems than the Euro may be an interesting investment. However, if Europe decides to split its monetary system, then the Euro will dive deep down. Choose your steps wisely.

This article does not recommend investing in the European currency.

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