The Uncertain Future of the Euro

20/12/2011

The Uncertain Future of the Euro

It's not just a matter of Europe growing at multiple speeds; the real issue is whether the euro can survive should member countries start pulling out. IESE Prof. Javier Díaz-Giménez says the euro's survival is not guaranteed, particularly in light of unresolved problems, not only in Greece, but also in Ireland, Portugal, Italy and Spain. With such low-growth prospects for the E.U., world economies dependent on large exports to Europe should be adjusting their growth strategies accordingly.

Is it possible to have a "euro of the North" and a "euro of the South"? IESE Prof. Javier Díaz-Giménez discounts this idea, warning that once a country leaves the euro zone, other states would likely follow suit.

The survival of the euro remains a question mark, he says in this interview, since many critical problems have not yet been solved, such as the issues of solvency of Greece and Ireland and a lack of liquidity in Spain and Italy.

Nevertheless, Europe remains a heavyweight in the global economy, reflecting 22 percent of the world's PPP, so whatever happens in the region will undoubtedly have an impact on the rest of the world. Indeed, the disappearance of the euro could lead to a "catastrophic" situation, he says, in which depressed demand and low growth would have a negative impact on non-euro countries that export to the region.