A single currency for the countries in the Eurozone was an idea that was brought up with the hope that this would steer economic development and eliminate trading barriers within this block. This has however turned to be a hindrance to economic growth within the region instead.
With the Eurozone economic crisis and deflation that has been witnessed in the countries within the Eurozone, the Euro currency has lost its value against other world currencies. It has for instance been exchanging at around $1.32 against the US Dollar in the resent past as evident in the graph bellow. Various measures have been put in place so as to save the Euro from the loss of value. One of these measures has been the purchasing of assets by the Central Banks of various countries.
Performance of the Euro against the US Dollar
The bank of Japan for instance launched a stimulus program where it was supposed to purchase assets with the intention of strengthening the Yen against major world currencies with the Euro included. This came in the wake of the European Central Bank and the U.S. Federal Reserve taking the same measures to strengthen their currencies.
The purchasing of government as well as corporate bonds was aimed at strengthening the yen against major world currencies but it did not yield much as expected. Strengthening the yen only helped in reducing oversees corporate earnings. The exporters do not get maximum profits when the currency is so strong against other world currencies and this to some extend slowed down the economic recovery.
The same measures that did not work quite effectively for the bank of Japan have been undertaken by the European Central Bank which is a clear indication that the Eurozone Economic Crisis is still far from being resolved. A stronger currency without the creation of jobs and building a platform for economic development would do little to avert the Eurozone crisis.
With all efforts being made to rescue the Euro against depreciating, the currency has remained consolidated for a long time against the major world currencies hence the need to come up with other formulas so as to save this currency. The currency has lost by 0.12% against the sterling pound hence exchanging at 0.8022. It also depreciated against other major currencies like the Swiss franc were it depreciated by 0.19% hence exchanging at 1.2088 Franc per Euro.
Performance of the Euro against the Sterling Pound
The Bank of Japan had opted for quantitative easing which involves the printing of more currency. This money is then used in the purchasing of bonds as well as other bank assets from banks. This then implies that these banks have more money at their disposal to issue as loans, improving their infrastructure and creation of employment by the opening of more branches, increasing their assets which then trickle down to economic growth.
This also helps in lowering the interest rates and this is quite critical in economic stimulation. It encourages spending and investment hence economic growth. The aim is basically to counter deflation by reducing interest and creating enough quantity reserve hence raising the price of these assets.
The extremely lower interest rates might however make it hard for the banks to sail through inflation. This measure also causes distortion on the government dept particularly given that some government borrowings are usually with extremely low rates and buying such securities and bonds are likely to slow down economic stimulation and any changes on these can have an enormous impact on the economy.
Sovereigns are also likely to mismanage their finances as they might not obey market pressures hence putting pressure on the economy. The European Central Bank had taken up these measures in an effort to alleviate the European Economic Crisis. In spite of all these measures the Euro has not strengthened much against the world major currencies for instance the Japanese Yen where the Euro depreciated by 0.02 to exchange at 102.79 Yen per Euro.
Performance of the Euro against the Japanese Yen
The Capital Markets have particularly been closed to some countries as well as banks in the zone due to the crisis but the European Central Bank has promised to take some short-term actions in an effort to revive the bonds market. All the measures taken are meant to rescue the Eurozone from the Economic crisis but this is not supposed to act as a quick fix and it will take time before the recovery is fully realized.
By the end of next year, it is expected that the crisis will be over. Investors are however very cautious on the economic situation in the region with countries such as Spain which still need to be bailed out of their debts. This has slowed down the economic development in the region hence slowing down the recovery.
The tax laws need to be changed so as to reduce the dept which is having a great effect on the GDP of the countries within the Eurozone. A compromise has to be reached concerning the tax laws as well as the appropriate measures to be taken so us to save the Euro.
The issue of creation of employment as well as reducing job loses is quite crucial in averting the crisis even though all the parties concerned have not found a common solution to this particular issue. The road to recovery has been quite sluggish with so many obstacles to be overcome. The Euro currency has particularly consolidated with no major variations in terms of appreciation or depreciation of the Euro.
Works Cited
Lapavitsas, Costas. Crisis in the Eurozone. London: Verso Books, 2012.