Ten years to the day since euro coins and banknotes were introduced, the currency is teetering on the brink of collapse. The celebratory blaze of fireworks from 1 January 2002 has died away and the dissidents who held on to their own currency appear to have been proved right. How have countries such as the UK, Denmark, Sweden and Switzerland been getting on all this time?

A Greek beauty strolls across a bridge that continues to roll out under her feet across idyllic green valleys, accompanied by the sweet strains of violin music. “Europe builds bridges and gives us hope,” says the voiceover. This film, to celebrate the anniversary of the European Central Bank, stands in stark contrast to reality.

In 2011, the exchange rate of the euro hit an all-time low against the US dollar. In ten years, it has never been worth so little in relation to the Japanese yen. The British government is working on an emergency scenario to protect the pound sterling if the eurozone collapses. And the one million anniversary euro coins that Greece is bringing into circulation on 2 January will most likely find their way into the hands of collectors soon enough. If the euro crumbles, they could end up being worth a lot of money.

The disaster that never happened
A majority of the British, Danes, Swedes and Swiss are very keen to hold onto their own currency. Little wonder, when you consider that the disaster which euro supporters predicted would overcome them never happened. With the exception of Denmark, their economies grew each year by an average of between 1.7 and 2.0 percent, compared to 1.4 percent for the countries that opted into the euro.

The nightmare scenario that investors and major companies would abandon the UK in their droves for the greener pastures of the euro countries on the European mainland failed to materialise. As economist and commentator Mathijs Bouman explains, many multinationals came up with their own solutions.

“When the UK decided not to participate, many British multinationals warned that they would experience negative repercussions. They converted part of their financial administration into euros. That’s only a problem if they have to pay their own people in the UK in pounds when the pound is very strong. But in recent years that hasn’t really been the case.”

Danish deal
The Danes and particularly the Swedes are not doing too badly at all without the euro. However, as Dr Bouman reminds us, the Danes do in fact belong to the eurozone although they don’t have voting rights. The deal that kept them out of the euro means they do not have a vote in the running of the European Central Bank. But they have linked the exchange rate of their own currency with that of the euro. The only real advantage of sticking with the krone is that they will not have to take action if the euro capsizes.

One argument made repeatedly in favour of the euro ten years ago was that trade would increase dramatically with the disappearance of all kinds of barriers such as currency transactions and exchange rate fluctuations. Yet the Netherlands Bureau for Economic Policy Analysis recently calculated that this effect has proved to be relatively modest for a strong trading nation, such as the Netherlands.

False sense of security
Arjo Klamer, one of the economists who warned ten years ago about the risks and the dangers of the euro, believes there is even a down side to this supposed trade advantage: it lulls euro countries into a false sense of security.

“The euro makes traders lazy because they have the tendency to do business with the countries of the eurozone, to sell their wares to the Greeks and the Italians. This means they don’t venture out into upcoming markets in Brazil and China. That calls for a whole different approach, where you are dealing with currency risks.”

Swiss success
An oft-cited example is Switzerland: not a member of the European Union or the eurozone, but surrounded by euro countries. Its economy, which is strongly geared towards the eurozone, has been performing well over the past decade. In fact, Swiss success was so convincing that, when the euro crisis hit, savers and investors converted all of their funds into Swiss francs – with or without the taxman’s blessing.

The huge demand for francs even drove up the exchange rate to such an extent that Swiss exports and tourism suffered badly as a result. Switzerland simply became too expensive. In response, the Swiss central bank decided to introduce a flexible link between the euro and the franc. The value of the Swiss franc will no longer be allowed to rise above 1.20 euros. If it does, the central bank will intervene and sell francs until the rate drops below this maximum.

Abandon ship?
The euro dissidents have not therefore been punished for going their own way. Should we therefore call it a day and abandon the Good Ship Euro? Arjo Klamer believes the euro will not survive until the end of 2012. But Mathijs Bouman expects that the euro will be with us for the next ten years at least.

“Unfortunately there is no other choice. All told, I believe it would have been better to introduce the euro at a later stage. Now we are being forced into European integration because the alternative is a financial crisis. That’s not the best way to arrive at solid agreements.”

(dd/as)