Math in the News: 9/26/11

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In this issue we look at what ails the euro. What are the underlying economic factors?

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Math in the News: 9/26/11

  1. 1. 9/26/11<br />
  2. 2. The Euro at a Crossroads<br />The European Union consists of the following countries.<br />
  3. 3. The Euro at a Crossroads<br />Of the 27 members of the EU, these 17 countries use the euro as their currency. These 17 countries make up what is called the “Euro Zone.”<br />
  4. 4. The Euro at a Crossroads<br />The euro became the common currency in the euro zone in 1995 and began worldwide circulation about a decade ago.<br />
  5. 5. The Euro at a Crossroads<br />The worldwide economic recession affected the euro around 2009. This chart shows the exchange rate between the euro and the dollar. Note the steep decline in 2009.<br />
  6. 6. The Euro at a Crossroads<br />This chart shows the euro vs. the Japanese yen. Once again, not the steep decline in 2009.<br />
  7. 7. The Euro at a Crossroads<br />While the dollar and the yen have had their own problems, here is a chart showing the exchange rate for the euro and the much more stable Swiss Franc. This much more clearly shows the struggles the euro is having.<br />
  8. 8. The Euro at a Crossroads<br />A common currency may ease some economic inefficiencies but it doesn’t overcome the underlying economics. The 17 Euro Zone countries have very different economies.<br />
  9. 9. The Euro at a Crossroads<br />This chart shows the Gross Domestic Product (GDP) for 2010 for the Euro Zone countries. Note the drastic differences in economic output across the 17 countries.<br />
  10. 10. The Euro at a Crossroads<br />Furthermore, while each country has a different level of economic output (GDP), each country incurs a national debt at a different rate. This is where the problems with the euro have emerged.<br />
  11. 11. The Euro at a Crossroads<br />Five countries–Italy, Spain, Greece, Portugal, and Ireland–have national debts that are close to or exceed 100% of economic output.<br />
  12. 12. The Euro at a Crossroads<br />When a country’s debt is so high, then it becomes more expensive for that country to borrow more money.<br />BUT, since these countries all rely on the euro, it is the common currency that is affected.<br />
  13. 13. The Euro at a Crossroads<br />Furthermore, unlike the U.S.—which has its own debt problems—these Euro Zone countries cannot print more currency, since they do not “own” the currency.<br />
  14. 14. The Euro at a Crossroads<br />The decline in the value of Euro, while stemming from a handful of countries, is affecting the entire European economy.<br />
  15. 15. The Euro at a Crossroads<br />The solution is to do two, almost contradictory things: grow their economies and reduce their national debt.<br />
  16. 16. The Euro at a Crossroads<br />Unless and until all of the Euro Zone countries have stable and growing economies, the euro will continue to struggle.<br />
  17. 17. The Euro at a Crossroads<br />In the extreme case where a country default on its debt, then euro could cease being a common currency, at least for the defaulting country.<br />
  18. 18. The Euro at a Crossroads<br />In 2010, the EU created the European Financial Stability Facility (EFSF) to help shepherd the affected countries and the EU out of these financial difficulties.<br />

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