Whither the Eurozone?

It's official -- the 15 EU countries that use the Euro currency are in recession or more correctly have been since April of this year. So too, it turns out, is the entire EU block, including the twelve states that presently have opted out of the Euro.

Is this trouble for the world entire? You bet.

There have been currency unions before -- some Caribbean states for example share a common currency (the Eastern Caribbean dollar, or XCD) which in any case is pegged fairly close to the US dollar. But the Euro (EUR), which celebrates its 10th birthday in the new year as a virtual currency and its 7th as a material one (in terms of paper notes and coinage) is a behemoth by comparison. At the end of last year, about €610 billion were in circulation -- which is more than all the equivalent in greenbacks out there on the entire planet.

For those who don't remember, here are the countries that use it: Austria, Belgium, Cyprus (South), France, Finland, Germany, Greece, Italy, Ireland, Luxembourg, Malta, Netherlands, Portugal, Spain, and Slovenia. Slovakia will adopt the currency in the new year, with more countries to follow in the early 10s. (Three other countries, all outside the EU -- Monaco, San Marino and Vatican City -- also mint Euro coins by permission but are not part of the group that decides how the currency is managed.)

Why should we worry on this side of the pond? Because this is the first time in living memory so many countries have fallen flat and so fast -- and certainly the first time so many have at the same time.

On the one hand, a common currency simplifies life both for B2B transactions as well as for tourism. No need to change money at the border, no more hedging that a vendor might end up losing money on the deal. On the other hand, if one country goes into recession (or, in reverse, overheats economically) that country's government can't simply loosen or tighten the money supply (respectively) on its own -- it has to act in coordination with its partners as well as the head office of the currency, in this case the European Central Bank in Frankfurt, Germany. The very strength of the money also is its strongest weakness.

Now imagine having to juggle fifteen developed countries with often competing interests and various national rates of slowdown. All states being relatively stable democracies to be sure, but all of which have surrendered one of the ultimate and tangible symbols of national sovereignty. And, let's not forget, while the UK is still sticking with the pound sterling officially, its banks actually do at least 90% of their business in the Euro, so it's not like they're not catching the cold from the Continent. So you can imagine Jean-Claude Trichet pulling his hair out right now figuring how to keep things from collapsing after floating hundreds of billions of euros on the open market already this year.

While many may wish for their old money back, most would admit the Euro is pretty much permanent. So why should we care?

Much of the world does trade with Europe, including Canada. So we're bound to feel the impact too. If the currency continues its rapid downward slide as the recession deepens -- a total reversal from just a few months ago when it was flirting with $1.60 US -- then new quality machinery companies need here will become more expensive to procure; leaving manufacturers to go to places with already questionable quality, Mainland China just being one of them. On the flip side, a lower Euro should mean a boon for foreign tourism but with people just barely scraping by here it's hard to see too many people going to Europe for vacations in the near future; Europeans in turn are going to be reluctant to return the favour.

Making things even worse.

Where does this leave Barack Obama? With one hell of a juggling act. He's going to have to figure out how to appease his own people in America as well as the citizens of Fortress Europe without offending either side. Failure to do so will lead to greater destabilization. At least he only has to deal with two currencies -- not dozens. But there are a whole lot of countries at stake.

Fasten your seat belt folks -- we've only just begun.

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