Will the Refugee Crisis Kill the Euro?

Angela Merkel, the Chancellor of Germany is concerned that the refugee crisis is not only a threat to the integrity of the EU but the foundations of the Euro as well. Bloomberg Business quotes Merkel as saying that the Euro is at risk.

German Chancellor Angela Merkel said Europe’s discord over refugees threatens the euro, raising the stakes as European Union leaders prepare for their next emergency meeting to stem the crisis.

“If we disintegrate into small countries again, a common currency will be very difficult,” Merkel said at a party rally late Monday in the western German town of Volkmarsen. “What we are seeing in recent days, with certain countries going their own way to the detriment of another country like Greece – that isn’t the European way.”

Will the refugee crisis kill the Euro? Such an event would require the breakup of the European Union which would not happen very fast if it did. Nevertheless, the threat of less solidarity in Europe is of concern. Why is there a European Union? How did it come to be and what would be the broader consequences if it breaks up.

Centuries of War in Europe

World War I from 1914 to 1918 was primarily in Europe and resulted in 38 million casualties and 17 million deaths. World War II killed 60 million people or 3% of the world population and again Europe was a center of conflict. From the days of Napoleon Europe was wracked by conflict. In the years of peace following the Second World War visionaries of the era started Europe on a path to first economic and then political cooperation and the main body of Europe has not seen war for 71 years. Europa.eu provides a history of the European Union.

The European Union is set up with the aim of ending the frequent and bloody wars between neighbors, which culminated in the Second World War. As of 1950, the European Coal and Steel Community begins to unite European countries economically and politically in order to secure lasting peace.

With the collapse of communism across central and eastern Europe, Europeans become closer neighbours. In 1993 the Single Market is completed with the ‘four freedoms’ of: movement of goods, services, people and money.

The euro is the new currency for many Europeans.

This timeline covers the 1950’s to the new century. Citizens of the EU travel across national frontiers without stopping and all use the same currency. Now war in the Middle East is sending refugees streaming into Europe and we ask if the refugee crisis will kill the Euro as it dismembers the European Union.

Positive Aspects of a Weak Euro

Reuters reports that European shares on higher in stocks as the Euro weakens.

The pan-European FTSEurofirst 300 index closed up 1.5 percent at 1,332.95 points, its highest level since Feb. 1.

The index extended earlier gains after stronger than expected U.S. manufacturing data sent the euro — already weakened by a poor euro zone manufacturing survey — to a fresh one-month low against the dollar.

The weaker euro in turn boosted shares in auto firms, which benefit from currency weakness because that makes exports cheaper. The STOXX Europe 600 Auto index rose 3.1 percent, making it the biggest sectoral gainer.

A weaker Euro means cheaper and more competitive European exports. Will the refugee crisis kill the Euro as it threatens the integrity of the EU? For right now a cheaper Euro is helping European manufacturing and the economy.