Europe's Anchor of Stability

Despite the euro's youth, it has proven to be a remarkable success. Not only has it eliminated exchange-rate risk from trade and investment within the euro zone; it has also provided an anchor of stability for euro-zone members in the face of severe external shocks, including soaring oil prices, the threat of terrorism, two wars, and the sub-prime mortgage meltdown in the US.

FRANKFURT – At less than ten years old, the euro is by all measures a young currency. Yet it has become a reality of daily life for almost 320 million people in 15 European countries. In the wake of the euro’s performance during this year’s global financial crisis, even its strongest critics cannot deny that the euro is an astounding success.

This past summer, millions of travelers avoided paying cumbersome and expensive charges to change their currency. But the advantage for trade and investment implied by the absence of foreign-exchange risks within the euro area is of greater economic importance. The common currency completes the single market for the euro area’s member states.

Since 1999, members of the European Monetary Union (EMU) have experienced a number of severe exogenous shocks: the rise in the price of a barrel of oil from around $10 to $150; the collapse of equity markets after the dot-com bubble imploded; the spreading risk of terrorism after the September 11, 2001, and two wars. Starting last summer, the breakdown of the market for US sub-prime mortgages triggered turbulence in financial markets, with no end in sight.

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