Even as recently as November, Warren Buffett, the famed CEO of Berkshire Hathaway, said of the eurozone's future that "it's hard to tell exactly how it comes out."
But since then, the euro
has appreciated nearly 11% as its member countries battled to contain
sovereign debt crises, rising unemployment and social unrest. The euro
now stands at a 13-month high against the greenback.
And flying in the face of
last year's critics, former European Central Bank chief Jean-Claude
Trichet told CNN's Nina dos Santos that the euro "was never about to
collapse" and that its viability as a currency is solid.
"The euro as a currency
has never been put in question," asserted Trichet, while at the same
time admitting the euro area's financial stability and credit worthiness
had been tested.
As for the euro, he said it "is certainly reliable and credible."
Yet, the euro's gains
over the past seven months is a mixed blessing. Arguments have
long-existed for and against a stronger currency. Appreciation means investors are more confident in the euro but eurozone exports become more expensive when sold overseas; devaluation makes the bloc's exports more competitive globally, which many eurozone officials would prefer.
But if the world's major
economies devalued their currencies to make exports more competitive and
to spur their economies to growth again, it would be chaos, says
Trichet.
"If the reasoning is the
same in all constituencies you have nothing but...a
'beggar-thy-neighbor' policy which is a recipe for catastrophe."
That catastrophe could take the form of an all-out currency war. And this week, the world's leading banks called on the G20 group of richest nations to avoid such an outcome.
"We believe major
central banks should focus on enhancing their cooperation...to guide
market expectations and thus help avoid a disorderly interest rate
adjustment process and undue exchange rate volatility," the Institute of
International Finance wrote in a letter to Russian Finance Minister
Anton Siluanov, who is chairing the G20 finance minister's meeting later
this week.
But with the eurozone in recession for the second time in four years, the desire to devalue the euro may be strong. The European Central Bank in December cut its 2013 growth forecast, with a best-case growth rate scenario of only 0.3%.
"It is no time for
complacency," warned Trichet who added that the central banks of the
United States, Japan and Europe as well as their private sectors should
get their "house(s) in order."
12/2/13
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