Will Euro Survive?

Last year, when I started to write this blog, (in May, 2010 - more than a Year Now!) in a post titled "Austerity Measures - everywhere around Europe" I had mentioned that I would not be surprised if EURO fails or dissolved. The current crises in Europe are showing some sign of Euro breakdown, even though it may not happen much sooner. Analyst and economist may feel this is a skeptic view, but, truth is always hard to accept.

Before going further, let me give a brief introduction on Euro "Euro is the official currency of the Eurozone which consist of 17 countries out of the 27 member states in the European Union. The euro was launched on 1 January 1999, when it became the currency of more than 300 million people in Europe. For the first three years it was an invisible currency, only used for accounting purposes, e.g. in electronic payments.  Euro cash was not introduced until 1 January 2002, when it replaced, at fixed conversion rates, the banknotes and coins of the national currencies like the Belgian franc and the Deutsche Mark" (Source: ECB website)

Coming back to the topic, that many economists and analyst now feels that Euro may fail and soon it may get dissolved. But, Professor Milton Friedman, Nobel laureate and Famous Monetarist, had this view even before Euro came into operation. In his interview to ABC Australia on 17 July 1998 that 

"In establishing the common currency area, the Euro, the separate countries are essentially throwing away this adjustment mechanism. What will substitute for it?

Perhaps they will be lucky. It may be that events, as they turn out in the next 10 or 20 years, will be common to all the countries; there will be no shocks, no economic developments that affect the different parts of the Euro area asymmetrically. In that case, they'll get along fine and perhaps the separate countries will gradually loosen up their arrangements, get rid of some of their restrictions and open up so that they're more adaptable, more flexible."

Friedman kept his view unchanged even in 2005, less than one year before he died (at age of 94 years)

"The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states. There have been unions based on gold or silver, but not on fiat money—money tempted to inflate—put out by politically independent entities. - Interview with New Perspectives Quarterly Magazine, 2005"

Some economist felt that Friedman was pessimistic in his view, and few said that Euro will not break-up or dissolve. They support their argument with the following stance that "Countries in the European member states are incredibly linked far beyond just sharing a common currency. The Borders of the countries have essentially been erased, the trade and even citizens can move freely between the Eurozone countries." It is true that Prof. Milton Friedman’s prediction is yet to come true, but it may happen sooner or later.

The current crises are showing the sign of break-up in Euro currency in the near future. The Greece crisis, which is slowly spreading to the rest of European member countries, will eventually make the member economies to move to their own currency after certain period of time. Still it’s too early to say how things will take its own shape.