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2010: A Wild Year for the Euro

January 4, 2011
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While 2010 might have come in as a lamb for the euro, it certainly went out as a lion.  January 1, 2010 saw the euro trading at €1 = $1.44, but after two bailouts, the euro ended the year at $1.34, which represents a decline of 7.2 percent over the year.  However, this is a little deceptive as the euro’s reached its nadir after the Greek bailout of slightly below $1.20 in early June, before the euro began its summer of recovery.  This was a 17.9 percent decline from the euro’s peak in January.  Of course, the Irish bailout in November stopped this appreciation, although the fall was not nearly as dramatic as after the Greek bailout.

Despite the euro’s rollercoaster ride in 2010, 2011 opens with the Eurozone adding its 17th member as Estonia joins the club.  This makes the small Baltic country the first post-Soviet and only the third post-Communist country to start using the single currency.  This is certainly an accomplishment, especially as it passed some former Communist countries who had previously been front runners.  Many may wonder why a country would want to adopt the euro in its times of trouble, but a simple explanation is that Estonia’s currency is already tied to the euro and joining the euro is a sign of Estonia’s progress.  (For more information see Estonia to Join the Euro despite Financial Crisis and a recent Economist article.)

Of course, the billion euro question is which trend will dominate 2011 for the euro?  Will the euro continue its swings as other members teeter on the brink of a bailout?  Or will other countries see the value of having a common currency and continue the process of economic and fiscal integration?  Either way, the outcome will have repercussions for the U.S. and the Midwest.

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