The Organisation for Economic Cooperation and Development (OECD) have announced that without sweeping reforms in the EU the euro will weaken against the majority of major currencies.
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The OECD’s analysis has stated there are fatal flaws that threaten to cripple the euro. The report compiled by the OECD will be welcomed by euro sceptics who believe the UK will be better off outside the bloc.
The OECD’s economics department is widely respected and they have stated that the euro cannot function properly without a genuine single market across the EU – something that is some way off.
The department has warned that there is not enough Labour flexibility across the EU for the currency to work effectively.
The intention was initially to have EU economies converging when the reality is they are diverging. The OECD says prices have increased since the introduction of the single currency.
The OECD was completely dismissive in regards to the euro ever rivalling the US dollar as a reserve as it was once claimed by its founders.
It was pointed out the euro has lost 25% of its value against the greenback since its implementation.
The analysis is will not be viewed well by the European Central Bank (ECB) who have recently ended Quantitative Easing (QE) in December. The OECD has questioned how the single currency can operate in an area where sudden changes can lead to asymmetric shocks, which affect some regions more than others.
One of the key benefits lauded upon the implementation of the euro was price transparency. This would enable consumers to compare prices across the EU. The OECD believes the single currency has limited price convergence.
A recent survey suggests that a litre of milk ranges from €0.67 in Portugal and €1.22 in Italy, close to double the price.
The OECD concluded, “Most of the Eurozone remains stifled by cumbersome administrative regulations, rigid labour markets and high operating costs.”
They advised that in order for the euro to prosper, Europe will have to overcome these national prerogatives and speak with one voice.”
Although sterling is prone to weakness short to medium term due to Brexit, it seems the euro has more deep-seated problems.
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