Landmark for Single Currency
June saw the European Central Bank’s 10th birthday and in just under six months the EU’s single currency will also be celebrating a decade of existence. Championed by the 15 countries who said a fond farewell to their francs, marks and lira, the euro is aspired to by many younger EU members. Slovakia is the next and poised to take the plunge in January 2009.
The euro might have got off to a sticky start, but it is now one of the world’s strongest currencies. Exchange rates against the US dollar and British pound are riding at an all-time high and in terms of foreign reserves, the euro ranks second to the dollar in the world.
Further good news for the euro has been its resistance in the face of the global credit crunch. While countries such as the US are facing just 0.8% GDP growth in the whole of 2008, growth in the eurozone reached 0.7% in the 1st quarter alone. Germany – one of Europe’s main powerhouses – is steaming ahead with a 1.5% increase.
However, although the euro may have brought a strong exchange rate, the single currency has not led to even economic progress. While Spain and Portugal have enjoyed some of the highest GDP growths in the EU over the last 5 years, other countries, such as Germany, are only just emerging from recession. With Germany now set to enjoy a long-awaited recovery, other eurozone nations are showing distinct signs of economic slowdown.
Just as it is swings and roundabouts on the economic front, opinions are divided about European Central Bank (ECB) policy. French and Italian premiers are often quick to criticise the ECB’s actions, but Germany’s Chancellor tends to back the policies. The recent decision by the ECB to raise Euribor interest rates brought widespread protests from eurozone mortgage payers. The Euribor’s increase to over the psychological barrier of 5% (the highest rate since 2002) tightens the purse strings for millions of homeowners, most of whom live in countries already feeling the effects of economic deceleration.
However, one of the greatest accomplishments of the euro has been to unify mortgage rates across the continent. Low interest rates and the consequent cheap credit has led to massive housing booms in a long list of eurozone countries such as Ireland, Spain, Portugal, Italy and Greece. Property investment in these countries has seen massive yields. Germany, whose mortgage market has traditionally been one of the most restrictive in Europe, has recently introduced widespread reforms to facilitate housing loans and bring them in line with those in other eurozone nations.
“The single currency has been a major undertaking, but the euro has brought huge benefits to the property investor,” comments Ken Thorkildsen, Director of Obelisk Private Finance. “Investors with a European property portfolio are able to save huge amounts when transferring money and the Euribor interest rate is traditionally lower than rates in the UK, making a euro mortgage cheaper.”
As the euro approaches its landmark anniversary, it is definitely not all good news for the eurozone and there may be troubled times ahead for the single currency. However, many experts agree that its advantages outweigh the disadvantages and one thing is certain – the euro is here to stay.
News submitted by Ken Thorkildsen, Obelisk Private Finance
