Restricted or empowered by the euro?
March 11, 2010 G
Mount Holyoke News PERSPECTIVES 7
BY XINYUN ZHU ’13 he euro is one of the most recognizable sym-
CONTRIBUTING WRITER bols of an integrated and well-functioning Eu-
ropean Union. It serves not only as a medium
of exchanges and transactions across borders, but also as a promotion of a unified Eu-
However, the recent sovereign debt crisis that arose in the euro zone has chal-
lenged the role of a common currency. The decreasing value of the euro has affected a
number of European countries, including Greece, Spain, Portugal, Ireland and Italy. 16
out of the 27 European member states are using the euro as their official currency. Be-
cause these countries share a unifying monetary policy but are unable to make inde-
pendent decisions to cope with the ongoing crisis. Thus, EU member states face a
dilemma—to remain in a unified, but inflexible monetary policy or to tackle their ex-
isting economic challenges independently.
According to the 2008 Nobel Prize laureate in economics Paul Krugman, a fully in-
tegrated fiscal and labor market is a must to ensure better implementation of the euro.
Drawing a comparison between Spain and Florida, both of which have experienced a
housing boom and the following bubble burst, Krugman noted that Spain cannot sim-
ply implement monetary policy to devalue the euro in coping with the public finance
crisis. What is more, its worsening level of unemployment will not be lessened by free
labor flow or social security net support. The recent depreciation of the euro is a mar-
ket response to the debt crisis, and also an exposure of the incongruity between the
euro as a transnational currency and the existing institutional shortcomings due to
the lack of a powerful central body that coordinates the economic management of dif-
ferent sovereign states.
In the context of the ongoing debt crisis, Sweden, one of a few member states that
hasn’t adopted the euro, is enjoying the popularity of its once not-so-desirable cur-
rency, the krona. Sweden’s sound public and private finance, as evidenced by its small
budget deficits, manageable public debt and stock market, strengthens investors’ con-
fidence in the krona.
Vedika Birla ’13 originally from India, a country with a flourishing economy, rec-
ognizes the potential domino effects that the euro can bring to the EU. She is especially
concerned about the currency’s value, which has further economic implications well be-
yond EU borders. The weakening of the euro may negatively affect other countries’
value of foreign reserves, especially countries with a large share of euro reserves.
While we can hope the crisis will soon be overm, one question remains—who will
bail out these sovereign states that are, to an extent, restricted by the euro?
A SKING E UROPEAN STUDENTS :
HOW WILL THE DECREASING VALUE OF THE EURO AFFECT YOU ?
My country, Norway, isn't formally a part of the Depending on how much the value of the euro
Negatively, because the Mace- European Union so we use the Norwegian Kr and not is going to fall, it might become very hard for me to
donian currency is pegged to the the euro. The euro's deflation gives me purchasing afford my education here.The price for tuition has
euro. It’s more expensive to buy dol- power when I travel outside of Norway to EU coun- already risen significantly for me from the fall to
lars now. tries, although, on the flipside, it's more expensive for the spring semester, and if it keeps rising, I might
other Europeans to import Norwegian-produced have to apply for a reevaluation of my financial aid.
goods and services, and this weakens our trade. In the worst case, I might have to drop out of
—Sandra Spirovska ’12 from Mount Holyoke.
Macedonia Norway Germany
EU’s carbon market faces challenges
—Nina Nedrebo ’10 from —Marion Messmer ’13 from
Falling carbon prices prompt Europe to
rethink its investment in cap-and-trade
BY VI BUI ’13
CONTRIBUTING WRITER used up its permitted amount. In that way, a company ference. But though
has the choice of either cutting down the amount of car- well developed in Eu-
Though once believed to be a good balance be- bon emitted using innovative technology and alterna- rope, the carbon trade
tween economic development and environmental pro- tive energy or buying more carbon credits. According system is not always
tection, the Europe Union’s carbon trading system is to Jen Christiansen, who teaches environmental eco- an applicable so-
now facing a plunge in carbon prices. nomics at Mount Holyoke, “this system figures out the lution for
Point Carbon, a carbon market analysis company, cheapest way to reduce carbon emission.”
reported that the carbon price fell to 14 euros per met- The failure of the Copenhagen climate con-
ric ton in the first two months of 2010. This drop af- ference in December to come to any spe-
fected the carbon trade, as the price is too low to be an cific agreement on carbon
incentive to power plants and heavy industry corpora- reduction resulted in the car-
tions to cut down on their carbon emission levels. 40 falling demand for car- bon reduc-
euros per ton is the floor price at which carbon trade bon credits in 2010. The tion in other countries.
can induce companies to either advance their emission Copenhagen conference Christiansen noted that carbon tax, a less
machinery or look for alternative energy sources to re- originally set as a goal complicated and fairer system, might be a more effec-
duce carbon emissions, and the current price is way carbon reduction that tive and practical incentive to cut down on carbon diox-
below that. Thus, this pricing situation compromises would increase the de- ide. Proposed in 2007 by Tufts economics professor
the EU’s goal of reducing carbon dioxide and global mand of carbon trade. However, no further pressure Gilbert Metcalf, carbon tax is combined with a reduc-
warming. was put on the market. What is more, the economic tion in the payroll tax, thus encouraging companies to
The carbon trading system, launched on Jan. 1, downturn led to a continuous drop in carbon price. either pay the tax or to reduce their own emission lev-
2005 by 15 European Union member states in response els.
to the Kyoto Protocol and also known as cap-and-trade, According to Christiansen, carbon dioxide reduc- In Europe, where more politicians are aware of the
has been a great success so far. In the year of its tion is an international problem that requires global destructive effects of carbon dioxide on climate change,
launch alone, 362 tons of carbon were traded. In this collaboration to construct a feasible framework. The the carbon trade system has been a successful policy.
system, companies are limited to a certain limit of car- United Nations has been working toward this goal The question now is how can the EU preserve the sys-
bon emissions and if they exceed that limit, they can through a series of summits and discussions starting tem’s original goal?
buy more carbon credits from a company that hasn’t from the Kyoto Protocol to the latest Copenhagen con-
Greece: A humble lesson in the pockets
8 PERPECTIVES March 11, 2010 G
Mount Holyoke News
BY TEMITOPE OJO ’10 titudes of euro zone member states towards
PERSPECTIVES EDITOR Greece. Though none have has promised to
offer any bailout funds, they seem willing
ust eight years after adopting
J the euro, Greece has be-
come a trouble spot for
the stability of the currency. The
to work with Greece to get its economy
on track. According to Bloomberg, the
outcomes of the March 7 meeting be-
tween French president Nicholas
country has fallen into a recent
Sarkozy and Greece’s prime minister
economic downslide that threatens
George Papandreou resulted in a definite
its national credibility and the economic
statement of support from the EU mem-
integration of the European Union.
According to a recent article in The
Greece has been cleaning up after it-
Economist, Greece’s dire economic po-
self, though at a high cost. According to
sition has called for debatable measures
the New York Times, more strikes and riots
both nationally and in the euro zone.
have broken out in Greece, especially in
Greek citizens would see a cut in earn-
the capital of Athens. Public relations be-
ings ranging from four percent to 50 per-
tween Greece and Germany are also de-
cent, a rise in the retirement age from 58
teriorating. In Germany the public
to 61 and a stricter tax system that
blames the Greeks for their own financial
would demand more returns from
dilemma and do not feel obligated to help
richer citizens and large property hold-
them out. They accused the Greeks of cor-
ruption, tax evasion and insincere finan-
In the euro zone, member states
cial reporting. Two members of
have shown varying degrees of reluc-
Germany’s governing coalition even rec-
tance to help Greece. Highest on the list
ommended that Greece sell off some of its
is Germany, which is one of the richest EU
states. Its national response to Greece’s sit-
Even though the economic and political
uation has been that Greece should sort it-
situation in Greece is far from stable, Papan-
self out on its own. The German chancellor
dreou is confident that will simmer down. With
Angela Merkel has been vague about promises
support building up from the EU, Greek officials are ready
of a financial rescue plan but together with other EU
After all, EU countries share a common currency, the to rein back the nation to its former standing as a stable
member states, Germany has insisted that Greece get its
euro. The euro’s already shaky condition could not with- capitalist economy in the euro zone. So with a bruised
deficit below three percent of Gross Domestic Product
stand a major blow like the bankruptcy of Greece. At pres- pride and smarting ego, Greece has taken its fair share of
(GDP) by 2012, starting from a 4.7 percent cut this year.
ent, the EU also worries about other member states like blame and is slowly climbing back to normal.
Last month, Greek public workers responded to this
Portugal, Italy and Spain who are facing similar economic
economic insecurity with a contained union-organized
protest. But protests have followed closely, reflective of
But last week’s actions and steps on the side of Greece
the fearful state of insecurity that has gripped the citi-
have raised some hope. The country was able to raise $7
zenry. The EU appears to be in a more fretful position,
billion by selling government debts in bonds and impart-
knowing that they cannot ignore the problem at hand.
ing their austerity packages back at home. These moves
have apparently helped to change the uncollaborative at-
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