20 Year Of Eurozone And Gold

The old continent is dying. The euro is on the brink of collapse. This is what you can often hear in the press. But is that really the case? We invite you to read our today’s article about the development of the Eurozone in the last twenty years and find out what are the real prospect of the euro – and what does it imply for the gold market.

In December, we celebrated 40 years of market reforms in China. In January, there was another important anniversary: 20 years of the euro area. So, let’s move from East Asia to Europe, analyzing the economic situation of the Eurozone and its implications for gold.

After years of negotiations and preparations, the euro was launched on January 1st, 1999. Initially, the shared currency was only virtual, and the national currencies were still legal tenders used in circulation. For ordinary citizens little changed. However, the exchange rates between national currencies were locked at fixed rates against each other, while the European Central Bank took control over their monetary policy. The euro notes and coins entered the circulation three years later.

The first members included Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Greece joined the club in 2001, thought it should not have done, as it turned out later. Since then, seven more countries – Slovenia, Cyprus, Malta, Slovakia Estonia, Latvia, Lithuania – entered the Eurozone.

At the beginning, everything was running smoothly. But then the financial crisis hit the Eurozone heavily, revealing significant defects in its architecture (the fatal flaw is that there is a currency union with the several independent fiscal policies). It was quite perverse, as the Great Recession erupted in America.

However, the US – with its unified fiscal and political system – overcame the crisis relatively quickly. On the contrary, the Eurozone suffered a prolonged depression, as the financial crisis morphed into the sovereign debt crisis. Only when Mario Draghi famously pledged the ECB would do “whatever it takes” to preserve the euro, the market turmoil calmed. 

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