by Thomas Wash
January 1, 2017, marked the 18th anniversary of the induction of the euro, the European single currency. Once praised as the uniting force among European countries, the euro has become a source of populist backlash. From Greece to France, populist politicians have increased their political clout to the chagrin of the establishment.
The primary motivation of the European Union was to create a unified European identity so that countries would not be tempted to fight wars with one another. Special attention was paid to Germany, which had tried to dominate Europe in the past. Ensuring peace throughout Europe meant Germany had to be subdued. In order for this to happen, Germany had to become dependent on its neighbors such that waging war would be against its own interests. Although this worked in the beginning, the 2008 financial crisis exposed the flaws in this plan. Germany’s excess savings and fiscal discipline led to it assuming the dual role as creditor and lender of last resort within the European Union. This gave Germany unparalleled leverage to dictate fiscal and foreign policies over other European countries.
In this report, we will take a deeper look into the factors that contributed to the formation of the European Union, as well as the negative effects the single currency has had on certain countries, particularly those located in southern Europe. As always, we will conclude with ramifications on the financial markets.