To read the British press, you’d think the euro was about to collapse, said Alain Frachon. The Brits “can hardly contain their joy” at what they see as the imminent demise of Europe’s common currency, which they so wisely, in their view, refused to adopt. If the weight of the bank debt in Ireland doesn’t crush the life out of the euro, they claim, then the coming “implosion of Portugal, followed by Spain, and so on” surely will. But their schadenfreude has a false premise. Ireland’s woes are the result of its wild economic policies; they have nothing to do with its currency.
Investors are still confident in the euro. It may have lost a bit of its value, but it has not plummeted, even in the wake of full-blown financial crises in Greece and Ireland. That’s partly because Europeans have created a hefty Financial Stability Fund as a safety net. But it’s also because the euro has been “a huge success” as the globe’s second reserve currency. While 62 percent of the world’s central bank reserves are in dollars, 27 percent are now in euros—and only 4 percent, I might add, are in British pounds. “That means that there are many who have an interest in seeing the European single currency remain healthy.” So tear up that obituary—the euro is here to stay.