Today, the Euro is valued at 1.07 against the US dollar, which represents a yardstick in currency valuation as the European central currency continues to tumble in value.
Extreme market volatility may well have ensued as a result of the Swiss National Bank’s decision to remove the 1.20 peg on its sovereign currency, the Franc, against the flagging Euro, however confidence across the entire globe is low in Eurozone economic sustainability, and with signs of fracture beginning to appear, the Euro is now almost on a par with the US dollar.
The difference is that the US dollar has remained a steady benchmark currency for worldwide transactions despite the increasing will of strong Asian economies such as China having introduced yuan clearing hubs in Western nations as the demand for the Chinese currency increases.
By contrast, the Euro is the sovereign currency of a region in which external debt is very high – in the case of France, 250% – whereas in the US it is only 99%, and in nations such as China, Indonesia and Mexico which are emerging economies with strong manufacturing bases, it is less than 10%.
External debt is a serious matter, however the European Central Bank remains exposed to 190 billion Euros of unserviceable debt should Greece exit the European Union, equating to a third of the European Central Bank’s entire capitalization, therefore creating a domestic debt situation across the member states of the European Union which would have to be written off.
Indeed, the Euro has not slumped to this level in twelve years, and a likely factor is the lack of confidence caused by The European Central Bank having began its trillion-euro bond buying campaign on Monday which is scheduled to extend into late 2016, nudging down yields in Germany and other core EU sovereigns.
A market economy which has growth potential must consist of thriving industry, self-sufficience, low external debt and minimal state dependency, and western Europe has an economic landscape which is quite the opposite, blighted by multiple bailouts, restructures, deindustrialization, state dependency and debt.
Switzerland’s move on January 15 this year was most certainly a measure taken to shore up its position as a secure financial center, in light of the overburdened Eurozone that surrounds it, therefore market volatility and further Euro value fluctuations are likely to lie ahead.