“I don’t think the euro has weaknesses,” said Jean-Claude Juncker, President of the Eurogroup and Prime Minister of Luxembourg. “I think the main problem and difficulty we have is to convince people that this was the right decision to be taken.”

Juncker’s comment from an interview during the Brussels Economic Forum 2008 demonstrates the unique problem faced by Europe’s single currency on its tenth birthday: despite its economic success, the euro can’t seem to find common ground with its citizens.

Considering Europe’s cultural and economic diversity, the agreement of a pan-European treaty, a central banking system and a single currency have been tall orders for the European Commission. Yet, against the odds and criticism, the Eurozone’s population now exceeds that of the U.S. Today, 320 million people in 15 member states are governed by the monetary policy of the European Central Bank in Frankfurt.

A Source of Stability

For some countries, the introduction of the euro has brought macroeconomic stability and invigorated their economies with foreign investment and pan-European access to skills and labor. Even countries awaiting accession or that have not yet introduced the euro are benefiting from the region’s change in economic activity.

According to the European Commission’s 10-year review of the economic and monetary union (EMU), benefits have included a stable 2% inflation rate, a deficit of only 0.6% of GDP resulting from strong fiscal policies, strong integration of financial markets and the creation of 16 million jobs.

Evidently, we cannot lay blame for the Eurozone’s shortcomings with the EMU. Rather, the problem lies in the very structure of the European Union. “As an international currency the euro is a major asset for all euro-area members and for the EU at large,” states the commission’s report. “However, the lack of a clear international strategy and the absence of a strong voice in international fora implies costs for the euro-area in an increasingly globalized world.”

This said, the euro continues to grow in strength and is now in a position to rival the weakened U.S. dollar as the global currency. Over a third of all foreign exchange transactions are now conducted in euros, and four years ago, euro-denominated international debt securities surpassed those of the dollar. During this time of uncertainty for the dollar, the euro has emerged as a stable option for the international finance community – already, a number of banks worldwide have converted significant proportions of their reserves into euros in an attempt to retain value.

What Lies Ahead

However, the real test for the euro’s resiliency is yet to come. A slowing global economy could spell disaster for this relatively new currency. Certainly, it has weathered recession in the past, but the sheer scale of the current crisis could pose a threat to the EMU’s future stability.

Of this, Juncker is acutely aware. “The Eurogroup has to make it clear to all the governments sitting around the table that we are living in a single currency area and thus in a single currency discipline,” he said. “The reality for a country member of the Eurozone is that they are no longer free to do what they want. We have to make sure that the single currency is shared with the greatest of discipline.”

Can the EMU really unite in time to face the current crisis? Time will tell.

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