Our latest study on the EURO currency. Please share if you find it noteworthy.

The EU dream was born out of the idea that countries are stronger together than they are apart, but data compiled over the past decade suggests that this may not be the case. The Greek debt crisis, political turmoil over Ukraine and global financial meltdown set the Euro currency on a downward spiral that it has not yet recovered from.

What caused the EU dream to become a nightmare, and what’s keeping it from recovery?

Our data is compiled from 39 trusted resources represents experts’ opinions on what contributed to a decreasing value of Euro against the American Dollar. In a visual way we are comparing an economic performance of Eurozone and Non-eurozone countries on a 5-year horizon and bringing up potential answers on questions “what can rescue Euro?” or “what if Greece was not permitted into the Eurozone?”.

Euro vs Dollar in Last 10 Years

Over the last 10 years the Euro has rose and fell against the USD, mainly because of the global financial crisis and the aftermath.

Between 2005 till the early half of 2007 the Euro was very stable against the Dollar. It remained at $1.20-$1.30. But once the crash started to take effect, things quickly started to change.

At first, things were looking very good for the Euro, which seemed to be sheltered from the effects of the crash as many countries were not as reliant on the banking sector as the United States. As the United States struggled with the effects of the crash, the Euro looked incredibly strong. It reached a high of $1.59 in April 2008.

Unfortunately for members of the Eurozone, this did not last. With the debt crisis hitting many members of the Euro — in particular Greece, Ireland and Spain — the Euro was hit hard.

By March 2009 the Euro was back down to $1.25, although the market was very volatile during this time. Over the next two years the Euro rose back to $1.44 then dipped as low as $1.22, before rising to $1.47 again. This pattern continued until mid-2014 when the Euro fell into a sharp decline against the Dollar. The Euro dropped from $1.39 in May 2014 down to $1.08 in August 2015.

While the sharp decline in the Euro looks strange, it was predicted during 2014. The OECD predicted that the Eurozone “runs the risk of prolonged stagnation”. Anticipating that the US economy would grow by 2.1% in 2014 and 3.1% in 2015.

Placing it far behind the United States, predictions for the Eurozone were for 0.8% in 2014 and 1.1% in 2015. On the whole, they appear to be correct. Worryingly Deutsche Bank predicts that the Euro will fall to $0.90 by the end of 2016 and $0.85 by the end of 2017.

Sources:

http://www.xe.com/currencycharts/?from=EUR&to=USD&view=10Y

http://www.xe.com/currencycharts/?from=GBP&to=EUR&view=10Y

http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm

http://www.xe.com/currencycharts/?from=GBP&to=USD&view=10Y

Top 4 Reasons for the Drop of Euro

1. Greek debt crisis

If Greece defaulted on its debt and exited the Eurozone (Grexit), is argued, it might create global financial shocks bigger than the collapse of Lehman Brothers did. The domino effect would hit currencies, stock markets and bonds in the Eurozone and around the world. That is why Greek crisis is the biggest influencer of the Euro’s value — as a currency — dwarfing other factors such as deflation. Without the Greek debt crisis, the Euro would be stronger!

2. Quantitative easing

European Central Bank started quantitative easing in March 2015. The quantitative easing increases a supply of money by flooding financial institutions with capital. The flooding of the new money raises inflation and devalues the Euro against the dollar.

3. Ukraine crisis

A more pressing and immediate threat to the stability of Europe come from Ukraine. If Ukraine isn’t stabilized soon, the EU will have more to worry about than just Greece. The impact could be transmitted through finance, if Russia grabs assets or if the creditworthiness of its assets declines. French banks are the most exposed, with $51 billion in claims over Russia. Among other channels, world trade may be impacted by a drop in Russian imports or if Russia holds back exports of its energy.

4. “Carry trade”

Traders short the Euro, which has a low interest rate, and use the funds to invest in British Pounds, which pay a higher interest rate. This seems to be an extremely profitable business. However, as a result, throughout the summer of 2015, the Euro remained below historical averages and combined with the other unfavourable conditions Euro does not manage to recover from its current low rates.

Sources:

http://www.telegraph.co.uk/finance/personalfinance/expat-money/11705978/Greek-crisis-is-the-biggest-influencer-of-the-euros-value.html

http://www.nytimes.com/interactive/2015/business/international/greece-debt-crisis-euro.html?_r=2

http://useconomy.about.com/od/worldeconomy/p/european_union.htm

http://www.investopedia.com/articles/investing/031315/how-ukraines-debt-crisis-affects-european-union.asp

http://www.bloomberg.com/news/articles/2014-03-21/russia-ukraine-crisis-threatens-europe-economy-cutting-research

The Biggest Eurozone Blunder: Admission of Greece

Greece used falsified economic data for 1997–1999 to gain entry to the EU in 2001. It would not have been admitted to the EU if they provided the correct data. The admission of Greece into the Eurozone in 2001, tying its economy to that of Germany, was a disaster waiting to happen. The error was so great that even this tiny economy — just 1.3% of the EU’s GDP — has contrived to traumatize Europe’s leaders.

What if Greece was not permitted into the Eurozone?

If Greece was not permitted into the Eurozone, it would have been much easier for them to default their debts. Greeks debts would have devalued. Its citizens would be in work. Investors would be investing. They would probably be on the road to recovery.

So one might say, falsifying economic data to be admitted to the EU was the biggest blunder of both EU & Greece and a disaster to the Greek citizens.

Source:

http://www.theguardian.com/commentisfree/2015/jul/08/greece-catastrophe-eurozone-grexit-default

Countries That Rejected Vs Countries That Accepted Euro

Britain and Denmark were the only countries with the option to reject joining the Eurozone. The British government opted out and Denmark voted against joining in a referendum, however Denmark has since pegged their currency to the Euro.

Britain’s growth has been stronger than the Eurozone with GDP almost reaching its pre-crisis peak at the end of 2014.

Denmark is the 3rd in the World Happiness Report, higher than all Eurozone countries. The Netherlands are the Eurozone’s highest country at 7th place, while Greece is the lowest ranked Eurozone country at 108th.

Denmark’s local purchasing power is much higher than any country in the Eurozone, 2.21% higher than Germany’s. While Germany’s local purchasing power is 24.79% higher than the United Kingdom’s.

Bulgaria has the lowest local purchasing power in the Eurozone, 62% lower than Denmark’s.

The cost of products like Fitbit have drastically gone up in Europe due to Euro shrinkage.

Sources:

http://ec.europa.eu/economy_finance/euro/adoption/who_can_join/index_en.htm

http://worldhappiness.report/wp-content/uploads/sites/2/2015/04/WHR15.pdf

http://www.numbeo.com/cost-of-living/compare_countries.jsp

http://www.tradingeconomics.com/united-kingdom/gdp

Cartoon Image source: http://blog.optionsclick.com/2012/11/14/dollar-down-on-cautious-euro-optimism/

See more at: http://www.coupofy.com/blog/the-shrinking-euro-infographic