Many analysts consider the euro to be a toxic asset. They say it is just a matter of time until it collapses. Moreover, they believe that the eurozone is to share the fate of its legal tender.
This summer, the euro performed poorly in the international market. For the first time in 20 years, it plunged below parity with the US dollar. The German authorities have voiced concerns about the current state of the euro. Alice Weide, a co-chairman of the Alternative for Germany (AfD) party, described the euro as a “dying currency.”
In the meantime, the euro is on a losing streak versus the greenback. On Monday, September 12, EUR/USD hit its 20-year low and traded around 0.9900 for the first time since 2002. As a reminder, the euro is a relatively young currency. It came into being 24 years ago, in 1999, and quickly became one of the most actively traded currencies.
Its current weakness is caused by a rapidly deteriorating state of the European economy and the outflow of foreign capital to the United States from Europe. Meanwhile, the European Union’s desire to punish Russia with tough sanctions for invading Ukraine came as a painful blow to its economy as well as triggered an energy crisis and a record spike in inflation in the region.
In the wake of the energy crisis, natural gas prices exceeded $2,000 a cubic meter. Notably, European households used to pay 10 times less than that just 10 years ago. The EU industry is now at stake as not all companies can cope with red-hot energy bills.
In the face of the energy crisis, European households have switched to a saving mode. However, following a record surge in power prices due to heat and extraordinarily dry conditions in Europe this summer, the euro tumbled against the US dollar. In this light, inflation accelerated and import prices skyrocketed.
The eurozone’s low business activity shows its poor economic condition. According to the latest data, the economy of the euro area contracted in July and August 2022. Meanwhile, the region’s economic outlook is dimmed by high consumer inflation, which is projected to hit a double-digit rate this autumn.
There are a few scenarios of what can happen if the eurozone collapses. Thus, it could lead to disintegration and the return of some member states, in particular, Italy and Greece, to their national currencies. Still, analysts reckon that the backbone of the eurozone, namely Germany, France, and the Netherlands, could keep the euro as their single means of payment.
Should the crisis spark wide disagreement within the EU, the euro could be liquidated and most European countries would return to their national currencies. Experts also assume that there could be a new attempt to form a union based on different principles and with another single currency.
