Euro gains favour amid crisis

Denmark, Iceland and Poland are increasingly looking towards the euro as their own currencies tumble in the wake of the financial turmoil that has swept the continent. But it remains unclear whether the single currency can provide a safe haven from the crisis.

“The world crisis has shown that it’s safer to be with the strong, among the strong and to have influence on the decisions of the strong,” said Polish Prime Minister Donald Tusk yesterday (27 October). 

Poland is expected to come forward today with a timetable for joining the euro by 2012 after its currency – the zloty – fell against the euro by 10% in recent days. 

The situation in Iceland is even worse, with the krona diving 40% after the recent collapse of the country’s booming financial sector, forcing Reykjavik to appeal for €5 billion in international loans. 

Despite the Icelandic population’s traditional resistance to joining the EU – namely due to the strong anti-EU fishermen lobby – 72.5% of Icelanders are now in favour of adopting the euro, according to a poll published by the daily Frettabladid. 

In Denmark, the crisis has also reopened the euro debate as international investors seek to shift towards bigger – and hopefully safer – currencies. The Danes rejected the single currency back in 2000 but the crisis appears to be harnessing support for the euro. Prime Minister Anders Fogh Rasmussen has already announced his intention to hold a fresh referendum on the issue before 2011 (EURACTIV 23/11/07). Yesterday, he stressed that it was “very clear” that it would be “detrimental” for Denmark to stay out of the euro zone during the current crisis. 

A safe haven? 

Yet it remains to be seen whether the euro can provide a safe haven from the crisis. Indeed, the single currency fell to a two-year low against the dollar yesterday amid recession fears and speculation that the European Central Bank would cut interest rates next week. 

Many investors are also concerned about European banks’ exposure to investments in emerging markets, such as Ukraine and Hungary, which have both had to turn to the International Monetary Fund for help. 

Low euro, good for business? 

Nevertheless, amid the gloom a silver lining, according to the EU business representation BusinessEurope, which despite forecasting near-zero economic growth for the euro zone next year (0.2%, down from 1.2% in 2008), insists that the euro’s decline against the dollar, in parallel with the drop in oil prices, is “positive for exports” and “positive for going global”. 

Major job losses forecast

However, the overall outlook looks bleak, with the federation forecasting that roughly 1.1 million jobs could be lost in the EU next year (in stark contrast with the roughly two million jobs that were created in 2008). 

A number of industries, including the car sector, have already announced temporary or partial factory closures and cuts in production as the recession starts to affect consumer demand. 

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