News / Europe

    European Leaders Back Euro

    Multimedia

    The leaders of Germany and France say they must strengthen the euro in 2011, to ensure the unity of Europe. The currency suffered in 2010, as some European economies faltered.

    German Chancellor Angela Merkel threw her weight behind the euro in her New Year's message. "The united Europe is the guarantor for peace and freedom," she said. "The euro is the basis of prosperity and Germany needs Europe and the common currency."

    The French president echoed her remarks in his message, saying the euro is here to stay. But the currency had a rocky time last year.

    Both Greece and Ireland needed financial bailouts and there may be more on the horizon, says Hamish McRae, a commentator for the London newspaper The Independent. "There is an immediate problem, which is what do you do about the sovereign debts of the weaker Euro-Zone countries: Spain, Portugal, Italy, conceivably Belgium," McRae said.

    To reduce debt, many European nations instituted austerity measures, cutting back on government services and spending.  That sparked demonstrations and strikes throughout Europe with more promised this year.  

    "You have got austerity measures in the various European countries, it is creating a lot of political and public unrest, and that is the problem that governments are wrestling with, trying to get their costs down at the same time as keeping their populations happy," said Michael Hewson is an analyst with CMC Markets in London.

    Weak European economies were the focus of an EU summit in December.  Leaders agreed to change the treaty that governs the bloc to set up a permanent mechanism for addressing sovereign debt problems, but the change will not take effect for three years.  

    Hewson says it did not solve the problem. "Nothing really in the short term has been resolved, so debt problems are going to continue to weigh going forward into 2011."

    McRae believes there will be a slow global recovery this year and that will help the euro. "I think the fact that there is general growth in the world economy will pull along even the slowest members, the back end of the convoy will get dragged along by it all.  But I do not think the tensions will go away because the debts will not go away."

    Traders are watching closely to see what economic decisions European leaders make to stabilize the euro.  McCrae says the currency is not in immediate danger. "I am confident that the euro will survive for now.  I think that the balance of probability is overwhelmingly is it will not survive in the long term unless, unless there is total political union within the Euro Zone," McCrae said.

    For now, the European leaders are unified in the opinion their common currency is vital to their common interests.

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