What Impact Has the Euro Had on Global Banking and Finance?

The announcement of the euro to the global market was the most important financial change in history since 1971 when the United States declared that it would no longer back the dollar with gold deposits.

The impact of the euro and its value on the global market has yet to be determined since it is still in its youth. However, it has the potential to make a profound impact depending on its future course and the global economy as a whole.

Essentially there are two situations that can potentially happen where the euro and its value will have an impact on the global economy and finances:

• Euro rises in value
• Euro growth is stabilized

Euro Rises in Value

Since its beginnings, investors have been playing with the euro to see the euro's potential impact on global banking market and finance. The first scenario is that the euro rises in value. If the euro were to rise in value at, or par with the U.S. dollar, here is the impact it would have on the market:

• The European Central Bank would sustain interest rates at higher levels to maintain investor confidence in the new monetary currency. This would not be justified by the unemployment rates.
• The activity of the euro is kept secret so that investors do not become nervous about the stability of the currency.
• The U.S. market grows and the Europeans invest more in the U.S. than in their own countries, which in turn promotes growth in the U.S. but slows growth within the European Union. The United Kingdom fails to join the European Union.
• Unemployment rates continue to rise within the European countries due to lack of investment.
• In turn, the U.S. dollar rises in value for a while due to increased investment. However, interest rates rise as well due to inflation and eventually borrowers succumb to their borrowing habits. Unable to pay back the borrowed money, the U.S. dollar begins to lose its value and become unstable.
• The drop in the U.S. dollar and the lack of confidence in the euro cause the two largest financial markets in the world to go into a slump. In turn, the rest of the world’s global markets follow because they depend on the stability and movement of the major financial markets. The world goes into a financial depression.
• Pressure grows in both Canada and Mexico to use the dollar in their own economy because the U.S. is so much in debt and with the dollar losing value is unable to provide the loans to these countries they used to.
• In Asian countries, the pressure is put on these countries to lower their currency against the U.S. dollar to achieve some sort of equilibrium throughout the world economy and make an attempt to balance out trade once again in the global market. 

Euro Growth Is Stabilized

The second scenario has a bit more of a happier ending for global banking and finance as well as the world economy as a whole. Essentially the opposite would happen as in the first scenario.

Here is what would happen if the euro’s growth was stabilized:

• The European Central Bank lowers interest rates within the market to encourage growth and entice investors to the European market.
• Interest rates within the European Union are kept control of, which further encourages growth, investment, and reduces the unemployment rate.
• The rise in the value of the euro and the decline in the value of the U.S. dollar occur simultaneously, however, both governments agree to balance this out.
• The trade deficit for the U.S. decreases and the stock market drops also as more investors move to invest their monies in European companies rather than U.S. companies. However, the U.S. economy is not hurt largely by this move as investors continue to invest here with the hopes that U.S. exports will rise.
• As U.S. exports increase, the financial market in both Mexico and Canada improve as their currency creeps the value of the U.S. dollar, but never goes beyond it.
• Japan and China readjust their financial systems according to the values of the U.S. dollar and the Euro and strengthen their economies.
• In turn, the rest of the world’s financial systems that have far lagged behind the major financial markets continue to build.