Effects on the Euro of a Smaller Euro Zone

More and more it appears that the series of patchwork solutions to the Euro Zone crisis applied so far is not going to lead to a sustainable solution to the debt dilemma. A smart Forex trader will now start considering the effects on the Euro of a smaller Euro Zone. The issues here are whether the Euro Zone will survive as is, break apart, or downsize as one or more of the PIIGS nations go their own monetary and fiscal way. No matter what happens a lot of money has been loaned and lenders will want payment of interest and principle. That fact, in and of itself, may force some nations such as Spain and Italy to remain in the Euro Zone. On the other hand, with the impending Greek bankruptcy in mind you cannot get blood from a turnip and there may soon be no way to get Euros from Greece, or for that matter Ireland, Portugal, Spain, or Italy.

Four Years into the Recession and Little Relief in Sight

All of this started, so it would seem, in 2008 with the second worst recession in 75 years. Nations such as Ireland, Spain, Portugal, Italy, and Greece found it difficult to raise enough taxes to fund governmental needs so they upped their borrowing. Their interest rates went up and, in Greece especially, the issue became that of a possible bankruptcy. Bailouts, austerity measures, and assurances that Europe will hang together to solve the debt dilemma have not alleviated five years of recession in Greece, a twenty-five percent unemployment rate in Spain, or the threat or renewed Euro Zone economic contraction . France elected a new leader who promises policies aimed at growth instead of austerity. Greece simply threw the bums out and now faces a payment deadline without the political will or consensus to avoid debt default.

The Value of a Large Trade Zone

The European Union came into being after World War II. It became clear to European leaders that the devastating cycle of wars in Europe had to stop. The goal was to tie the nations of Europe together economically and the politically. It has been largely successful in accomplishing its goals. Beyond that the EU has become an economy on par with that of North America to the envy of much of the world. European leaders would like to keep this situation intact but have been struggling in light of increasing debt burdens across its Southern tier. An intact EU not only helps trade across the continent but supports a strong Euro. The effects on the Euro of a smaller Euro Zone would start with decreasing the size of the economy supporting the Euro. The effects on the Euro of a smaller Euro Zone would also include a strengthened economy comprised of solvent members, or would it?

How Much is Germany Willing to Pay to Maintain a Large Trade Zone?

Much of the strength of the solvent economies of the Euro Zone, starting with Germany, comes from selling products and services throughout a free trade zone on an economic par with North America. Cutting out the less solvent Southern tier of states might be a good short term fix but the effects on the Euro of a smaller Euro Zone could include loss of influence on policies and diminished access to consumers in these nations. A Euro Zone breakup would still allow Germany to sell to Greece, Italy, and Spain but at the cost of protective tariffs.