European Countries’ Transition to Euro Hardly to Solve Financial Crisis: Western Experts

Business Materials 5 November 2008 17:12 (UTC +04:00)

Azerbaijan, Baku, 5 November / Trend corr. A.Badalova, Y.Ostapenko / Transition of all European countries to Euro will not contribute in solution of the financial crisis, believe experts, questioned by Trend .

"The current crisis is not a monetary crisis, it is a crisis for banks and financial institutions," Fredrik Erixon, the director of the European Centre for International Political Economy, told Trend via e-mail.

Denmark has become the first country intending to enter the Euro-zone under conditions of the financial crisis. In accordance with results of survey, which was published in Politicain newspaper, 52% of Danish citizens are sure that it is necessary to introduce the united European currency instead of the Danish krone. Danish Premier Anders Fogh Rasmussen stated his intention to hold referendum in the country by expiration of his office term in 2011 on reasonability to maintain relevant reservations in relations with the European Union (EU).

Denmark's membership in the EU was stipulated with four reservations, coordinated with the EU Commission in 1993. Denmark refused from participation in formation of joint armed forces and idea of the EU common citizenship.

"Many of the previous financial crises have been linked or caused by monetary policy, but not the current one," Erixon said.

According to Erixon, More members in the Eurozone could help the coordination of the fiscal response to the economic recession, but only at the margins.

The main reason is that although there is a European currency (the Euro) there is no European tax-payer so that national finance ministries have to organize bank rescues and to use fiscal policy, Iain Begg, the Professor on Economy of the European Institute, said.

On the other hand, the crisis would almost certainly have been more difficult to deal with if currency crises inside Europe had been added to the financial crises, Begg believes.

The experts hold different opinions concerning possible weakening of USD in the case of acceptance of Euro by all European countries.

"Although there has been some increase in the use of the Euro as a reserve currency, but the dollar is still regarded as a safe option for countries that hold reserves," Begg believes.

According to Erixon, the dollar still is the main reserve currency in the world, but the as the Euro-zone grows it is likely to assume a bigger role on world markets and take some of the reserve-currency function from the dollar.

The Euro-zone still needs greater stability and more financially liquid markets if it is to become the lead currency in the world, he said.

In the long run Erixon expects a greater diversification between the dollar, the Euro and emerging market currencies, like the Chinese Yuan.

Denmark's willingness to join the Euro-zone will not draw other European countries, which are not included in the zone, to accept the Euro

"Several countries in East and Central Europe are still waiting to qualify for membership. The financial crisis has made this process more difficult, but also highlighted the problems the have in their monetary policy," Erixon said.

Denmark's increasing willingness to join the Euro-zone is temporary, he believes.

According to Erixon, Sweden might become more inclined to join the euro if Denmark does, but it will take several years before Sweden is likely to have a new referendum on whether they should join or not.

Begg keeps the same opinion concerning instability of Denmark's political views on the Euro.

"For Danes it is not just a question of the currency, but also about retaining autonomy," Begg said.

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