UCG on the Euro’s Future
Greek 2 Euro Coin Shows the Woman (Europa) Riding the Beast (cf. Revelation 17:7)
In the latest edition of its WN&P, UCG’s Paul Kieffer wrote about the future of the Euro:
The euro’s future
In a time of turmoil in financial markets around the world and a deepening recession, it might seem a bit bold to attempt to predict the euro’s future. Even without the current crisis this could be a challenge, especially in light of the variation in the euro’s value during the first 10 years of its existence. However, two key factors provide guideposts for future observation.
The first is the dollar’s position as the world’s dominant reserve currency. Since currency reserves held by foreign governments are actually like an interest-free loan to the issuing government—exchanged either for currency or goods—foreign currency reserves act as a subsidy to the country issuing the reserve currency. The dollar has enjoyed this position since it replaced the British pound as the world’s main reserve currency.
The dollar’s use as a global means of exchange for goods and services contributes to its standing as the world’s reserve currency. Since about half of the value of the goods exchanged in international trade is denominated in U.S. dollars, the American greenback benefits even when the United States is not directly involved in the exchange. This is because foreign currencies have to be exchanged for dollars to complete the transaction. One highly visible example of this is, again, the oil market.
Any move away from the dollar as a benchmark for the price of oil would weaken the dollar’s value on world currency markets—and strengthen the euro.
The dollar’s decline has countries like China concerned about preserving the value of their large foreign currency holdings in U.S. dollars. The Chinese are already diversifying their vast foreign currency reserves, currently estimated to be worth some $1.4 trillion. However, they are being very careful not to just dump the dollar, which would hasten the decline and only further reduce the value of their remaining U.S. dollar reserves.
Another issue likely to affect the dollar’s position as the world’s reserve currency is America’s growing national debt, which has doubled in only eight years to total $10.65 trillion.
If corporate and private debt is included, the United States is awash in nearly $50 trillion of debt. (The amount is even larger if as-yet-unfunded benefits already earned in the U.S. Social Security System and other entitlements are factored in.)
The U.S. government is now making interest payments of $19 billion a month to its creditors—more than $200 billion a year.
The current crisis will only see America’s debt situation worsen. The national debt figure does not include the $700 billion bailout fund approved by Congress in September 2008. In October and November U.S. Treasury Secretary Henry Paulson borrowed over $400 billion, and Scott Minerd of Guggenheim Partners predicts that America’s budget deficit for 2009 will run as high as $1.5 to $2 trillion, adding upwards of 20 percent to America’s current national debt.
Some wonder whether America’s growing national debt will eventually make the country a credit risk. According to Pierre Nahm, an adviser for hedge funds, the United States won’t go bankrupt because a country has the option of simply printing enough money to pay its debts. In so doing, inflation takes its toll on the debt, and debtors would be repaid in devalued dollars.
Creditors apparently think that America will not swallow her wallowing debt so easily. The rate for “credit default swaps” (CDS) for U.S. treasury securities increased fourfold after the $700 billion bailout was passed in September. In other words, the risk premium for $10 million of treasury securities increased from $10,000 to $40,000, reflecting less confidence in the U.S. government’s ability to repay its debt.
For the time being, it seems that America’s largest creditor nation, China, has no choice but to continue to invest its dollar earnings in the United States. As long as the price of oil on world markets is pegged to the dollar and the Chinese continue to hold their dollar-denominated assets and invest in U.S. treasury securities, the United States will be able to keep running up the red ink.
If, however, either of these two factors changes, the dollar is in for rough times and its attractiveness as a reserve currency will be lessened.
The eurozone
The other key factor affecting the euro’s future is the cohesiveness of the eurozone itself. Several internal challenges hinder the euro’s further development as a competitor to the U.S. dollar as the world’s major reserve currency. National budget deficits of some eurozone members in excess of the 3 percent GDP limit, weak economies of its newest members and inertia on the path toward coordinated economic and taxation policies are important reasons the euro remains in second place among major world currencies.
When the euro was introduced 10 years ago, analysts warned that the internal structure of the eurozone might precipitate the collapse of the new currency. Sixteen countries are now members of the EU’s monetary union, but each country still determines its own economic policies and taxation rates. For example, income tax rates are not uniform within the eurozone, and VAT (value-added tax) on goods and services sold varies from 15 to 21 percent. (The EU mandates a minimum 15 percent VAT for all EU members.)
Predictions of the euro’s demise have been pro ven wrong to date, but the fact remains that the eurozone is not a homogenous economic unit. However, the worldwide financial crisis is forcing eurozone members to cooperate and coordinate their efforts more than ever before.
In October eurozone countries and the European Central Bank (ECB) announced their intention to prevent the collapse of any major financial institution within the eurozone. In a joint statement, eurozone countries pledged to coordinate their efforts and provide liquidity for banks for periods of up to five years.
The ECB agreed to create an unsecured lending facility to buy commercial paper from banks, similar to an earlier move by the U.S. Federal Reserve Bank. The ECB action guarantees the availability of funding for banks in the eurozone.
The eurozone action came only one week after an EU summit meeting that failed to produce an EU bailout plan for the entire EU. British Prime Minister Gordon Brown attended the eurozone meeting but was not involved in its formal decisions because his country does not use the euro and will not receive direct support from the ECB.
Last month eurozone finance ministers rejected a call by the European Commission to lower the standard EU VAT rate as an economic stimulus measure for Europe, which has been in recession officially since the third quarter of 2008.
The closer coordination among eurozone countries is a noteworthy development reflecting a “united we stand, divided we fall” attitude. Eurozone member states voluntarily became part of what is now a mutually dependent financial community, making it more than just an alliance that one could leave at any time.
Any country that exits the eurozone would be on its own, and the only country that could possibly afford to do that would be Germany. However, as a member of the eurozone, Germany’s multinational companies enjoy the benefit of simplified bookkeeping in one currency across national borders, making it highly unlikely that Germany with its trade-dependent economy would unilaterally withdraw from the eurozone.
With a country’s currency part of its national sovereignty, eurozone members have in effect transferred part of their own sovereignty to the ECB. Bible prophecy indicates that this pattern in Europe established by the introduction of the euro will continue and intensify, culminating in a final transfer of authority to a central power called the “beast” (Revelation 17:12-13).
I would take this a couple of steps further and state that despite the hesitation in the above article about the demise of the US dollar, Europe is certainly destined (not just indicated) to be the major economic player in the world.
The increasing debt and eventual devaluation of the US dollar is inevitable and the rise of a currency in Europe is the logical replacement.
In line with biblical prophecy, the events in the world show that we are witnessing a shift in economic power from the Anglo-American nations to those of continental Europe.
Several articles of possibly related interest may include:
Europa, the Beast, and Revelation Where did Europe get its name? What might Europe have to do with the Book of Revelation? What about “the Beast”? What is ahead for Europe?
Anglo – America in Prophecy & the Lost Tribes of Israel Are the Americans, Canadians, British, Scottish, Welsh, Australians, Anglo-Southern Africans, and New Zealanders descendants of Joseph? Where are the lost ten-tribes of Israel? Who are the lost tribes of Israel? Will God punish the U.S.A., Canada, United Kingdom, and other Anglo nations? Why might God allow them to be punished first?
Barack Obama, Prophecy, and the Destruction of the United States Some claim that Barack Obama is the prophesied “son of Kenya”, based up an early 20th century writing.
Prophecy Obama: Prophecies of Barack Obama? Are there biblical and non-biblical prophecies about Barack Obama. Did Nostradamus predict Barack Obama dealing with the Antichrist? This is the longest and most detailed of the articles here related to prophecy and Barack Obama.
Who is the King of the North? Is there one? Do biblical and Roman Catholic prophecies point to the same leader? Should he be followed? Who will be the King of the North discussed in Daniel 11? Is a nuclear attack prophesied to happen to the English-speaking peoples of the United States, Great Britain, Canada, Australia, and New Zealand? When do the 1335 days, 1290 days, and 1260 days (the time, times, and half a time) of Daniel 12 begin? When does the Bible show that economic collapse will affect the United States?
Does God Have a 6,000 Year Plan? What Year Does the 6,000 Years End? Was a 6000 year time allowed for humans to rule followed by a literal thousand year reign of Christ on Earth taught by the early Christians? When does the six thousand years of human rule end?
Can the Great Tribulation Begin in 2009, 2010, or 2011? Can the Great Tribulation begin today? When is the earliest that the Great Tribulation can begin? What is the Day of the Lord?
End of Mayan Calendar 2012–Might 2012 Mean Something? There is a Mayan calendar prediction for change in 2012. 2012 changes were also centuries ago predicted by the Hopi Native Americans (the Hindus may have some predictions for the next decade as well). Do these Mayan/Hindu/Hopi prophecies have any value? Why might Satan have inspired this date? Does the Dresden codex show destruction of the earth by flood? Can the great tribulation start before 2012?
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