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Euro anniversary no cause for celebration

Wednesday, 31st December 2008

January 1, 2009 is the 10th anniversary of the introduction of the euro. But UKIP MEP John Whittaker has suggested that the currency may be about to fracture.

"It has never made sense to have the same currency for 15 countries with independent budgets, different economic cycles and widely different living standards," said Dr Whittaker, who is an economist at Lancaster University.

"But the credit crunch has now exposed its real weakness. While all economies are suffering, some eurozone countries are now in an impossible position. Property booms in Spain, Ireland and other countries - fuelled by cheap credit - have now dramatically collapsed, unemployment is rising all round and there are riots in Greece.

"What these countries need is lower interest rates and devaluation but, stuck in the euro, there is nothing they can do. The European Central Bank is even holding interest rates higher than Britain and the US, pretending that Europe is not suffering as much. This has led to the extraordinary strength of the euro which is helping to crush eurozone exports and make things even worse."

The euro started life in 1999 for transactions between 11 EU countries, although banknotes were not used until 2002. Greece joined in 2001, followed later by Slovenia, Malta and Cyprus. Slovakia joins this year.

Dr Whittaker said that the state of public finances, particularly in Greece, could be what leads to break-up.

"The Greek government has huge debts of 93% of GDP and interest on this debt already takes up some 25% of tax revenue. It is having to pay twice as much interest on its debt as the German government - a sure sign that markets worry it could default.

"If it does, and unless other EU countries bail it out, its only choice will be to ditch the euro and go back to its old currency, the drachma. After Greece, Italy would be the next country likely to leave.

"In the midst of this, we have the surprising suggestion from European Commission President Barroso that it is now time for Britain to reconsider joining the euro. He clearly wants us to share the misery.

"It might be the euro's 10th birthday but we would be crazy to join the party."

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