The euro is one of the most recognizable sym-bols of an integrated and well-functioning Eu-ropean Union. It serves not only as a medium

of exchanges and transactions across borders, but also as a promotion of a unified Eu-ropean identity.

However, the recent sovereign debt crisis that arose in the euro zone has chal-lenged the role of a common currency. The decreasing value of the euro has affected anumber of European countries, including Greece, Spain, Portugal, Ireland and Italy. 16out of the 27 European member states are using the euro as their official currency. Be-cause these countries share a unifying monetary policy but are unable to make inde-pendent decisions to cope with the ongoing crisis. Thus, EU member states face adilemma—to remain in a unified, but inflexible monetary policy or to tackle their ex-isting economic challenges independently.

According to the 2008 Nobel Prize laureate in economics Paul Krugman, a fully in-tegrated fiscal and labor market is a must to ensure better implementation of the euro.Drawing a comparison between Spain and Florida, both of which have experienced ahousing boom and the following bubble burst, Krugman noted that Spain cannot sim-ply implement monetary policy to devalue the euro in coping with the public financecrisis. What is more, its worsening level of unemployment will not be lessened by freelabor flow or social security net support. The recent depreciation of the euro is a mar-ket response to the debt crisis, and also an exposure of the incongruity between theeuro as a transnational currency and the existing institutional shortcomings due tothe lack of a powerful central body that coordinates the economic management of dif-ferent sovereign states.

In the context of the ongoing debt crisis, Sweden, one of a few member states thathasn’t adopted the euro, is enjoying the popularity of its once not-so-desirable cur-rency, the krona. Sweden’s sound public and private finance, as evidenced by its smallbudget deficits, manageable public debt and stock market, strengthens investors’ con-fidence in the krona.

Vedika Birla ’13 originally from India, a country with a flourishing economy, rec-ognizes the potential domino effects that the euro can bring to the EU. She is especiallyconcerned about the currency’s value, which has further economic implications well be-yond EU borders. The weakening of the euro may negatively affect other countries’value of foreign reserves, especially countries with a large share of euro reserves.

While we can hope the crisis will soon be overm, one question remains—who willbail out these sovereign states that are, to an extent, restricted by the euro?

PERSPECTIVES 7March 11, 2010 � Mount Holyoke News

Restricted or empowered by the euro?BY XINYUN ZHU ’13CONTRIBUTING WRITER

Depending on how much the value of the eurois going to fall, it might become very hard for me toafford my education here.The price for tuition hasalready risen significantly for me from the fall tothe spring semester, and if it keeps rising, I mighthave to apply for a reevaluation of my financial aid.In the worst case, I might have to drop out ofMount Holyoke.

—Marion Messmer ’13 from GermanyGermany

AASKINGSKING EEUROPEANUROPEAN STUDENTSSTUDENTS::HOW WILL THE DECREASING VALUE OF THE EURO AFFECT YOUYOU?

My country, Norway, isn't formally a part of theEuropean Union so we use the Norwegian Kr and notthe euro. The euro's deflation gives me purchasingpower when I travel outside of Norway to EU coun-tries, although, on the flipside, it's more expensive forother Europeans to import Norwegian-producedgoods and services, and this weakens our trade.

—Nina Nedrebo ’10 from NorwayNorway

Though once believed to be a good balance be-tween economic development and environmental pro-tection, the Europe Union’s carbon trading system isnow facing a plunge in carbon prices.

Point Carbon, a carbon market analysis company,reported that the carbon price fell to 14 euros per met-ric ton in the first two months of 2010. This drop af-fected the carbon trade, as the price is too low to be anincentive to power plants and heavy industry corpora-tions to cut down on their carbon emission levels. 40euros per ton is the floor price at which carbon tradecan induce companies to either advance their emissionmachinery or look for alternative energy sources to re-duce carbon emissions, and the current price is waybelow that. Thus, this pricing situation compromisesthe EU’s goal of reducing carbon dioxide and globalwarming.

The carbon trading system, launched on Jan. 1,2005 by 15 European Union member states in responseto the Kyoto Protocol and also known as cap-and-trade,has been a great success so far. In the year of itslaunch alone, 362 tons of carbon were traded. In thissystem, companies are limited to a certain limit of car-bon emissions and if they exceed that limit, they canbuy more carbon credits from a company that hasn’t

used up its permitted amount. In that way, a companyhas the choice of either cutting down the amount of car-bon emitted using innovative technology and alterna-tive energy or buying more carbon credits. Accordingto Jen Christiansen, who teaches environmental eco-nomics at Mount Holyoke, “this system figures out thecheapest way to reduce carbon emission.”

The failure of the Copenhagen climate con-ference in December to come to any spe-cific agreement on carbonreduction resulted in thefalling demand for car-bon credits in 2010. TheCopenhagen conferenceoriginally set as a goalcarbon reduction thatwould increase the de-mand of carbon trade. However, no further pressurewas put on the market. What is more, the economicdownturn led to a continuous drop in carbon price.

According to Christiansen, carbon dioxide reduc-tion is an international problem that requires globalcollaboration to construct a feasible framework. TheUnited Nations has been working toward this goalthrough a series of summits and discussions startingfrom the Kyoto Protocol to the latest Copenhagen con-

ference. But thoughwell developed in Eu-rope, the carbon tradesystem is not alwaysan applicable so-lution for

car-bon reduc-

tion in other countries.Christiansen noted that carbon tax, a less

complicated and fairer system, might be a more effec-tive and practical incentive to cut down on carbon diox-ide. Proposed in 2007 by Tufts economics professorGilbert Metcalf, carbon tax is combined with a reduc-tion in the payroll tax, thus encouraging companies toeither pay the tax or to reduce their own emission lev-els.

In Europe, where more politicians are aware of thedestructive effects of carbon dioxide on climate change,the carbon trade system has been a successful policy.The question now is how can the EU preserve the sys-tem’s original goal?

BY VI BUI ’13CONTRIBUTING WRITER

Falling carbon prices prompt Europe torethink its investment in cap-and-trade

Negatively, because the Mace-donian currency is pegged to theeuro. It’s more expensive to buy dol-lars now.

—Sandra Spirovska ’12 from

MacedoniaMacedonia

EU’s carbon market faces challenges

PERPECTIVES8 March 11, 2010 � Mount Holyoke News

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Just eight years after adoptingthe euro, Greece has be-come a trouble spot for

the stability of the currency. Thecountry has fallen into a recenteconomic downslide that threatensits national credibility and the economicintegration of the European Union.

According to a recent article in TheEconomist, Greece’s dire economic po-sition has called for debatablemeasuresboth nationally and in the euro zone.Greek citizens would see a cut in earn-ings ranging from four percent to 50 per-cent, a rise in the retirement age from 58to 61 and a stricter tax system thatwould demand more returns fromricher citizens and large property hold-ers.

In the euro zone, member stateshave shown varying degrees of reluc-tance to help Greece. Highest on the listis Germany, which is one of the richest EUstates. Its national response to Greece’s sit-uation has been that Greece should sort it-self out on its own. The German chancellorAngelaMerkel has been vague about promisesof a financial rescue plan but together with other EUmember states, Germany has insisted that Greece get itsdeficit below three percent of Gross Domestic Product(GDP) by 2012, starting from a 4.7 percent cut this year.

Last month, Greek public workers responded to thiseconomic insecurity with a contained union-organizedprotest. But protests have followed closely, reflective ofthe fearful state of insecurity that has gripped the citi-zenry. The EU appears to be in a more fretful position,knowing that they cannot ignore the problem at hand.

After all, EU countries share a common currency, theeuro. The euro’s already shaky condition could not with-stand amajor blow like the bankruptcy of Greece. At pres-ent, the EU also worries about other member states likePortugal, Italy and Spain who are facing similar economiccrises.

But last week’s actions and steps on the side of Greecehave raised some hope. The country was able to raise $7billion by selling government debts in bonds and impart-ing their austerity packages back at home. These moveshave apparently helped to change the uncollaborative at-

titudes of euro zone member states towardsGreece. Though none have has promised to

offer any bailout funds, they seemwillingto work with Greece to get its economyon track. According to Bloomberg, theoutcomes of the March 7 meeting be-tween French president NicholasSarkozy and Greece’s prime ministerGeorge Papandreou resulted in a definitestatement of support from the EU mem-ber states.

Greece has been cleaning up after it-self, though at a high cost. According totheNew York Times, more strikes and riotshave broken out in Greece, especially inthe capital of Athens. Public relations be-tween Greece and Germany are also de-teriorating. In Germany the publicblames the Greeks for their own financialdilemma and do not feel obligated to helpthem out. They accused the Greeks of cor-ruption, tax evasion and insincere finan-cial reporting. Two members ofGermany’s governing coalition even rec-ommended that Greece sell off some of itsuninhabited islands.

Even though the economic and politicalsituation in Greece is far from stable, Papan-

dreou is confident that will simmer down. Withsupport building up from the EU, Greek officials are readyto rein back the nation to its former standing as a stablecapitalist economy in the euro zone. So with a bruisedpride and smarting ego, Greece has taken its fair share ofblame and is slowly climbing back to normal.

BY TEMITOPE OJO ’10PERSPECTIVES EDITOR

Greece: A humble lesson in the pockets