T he 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 a number of European countries, including Greece, Spain, Portugal, Ireland and Italy. 16 out 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 a dilemma—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 a housing 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 finance crisis. What is more, its worsening level of unemployment will not be lessened by free labor 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 the euro as a transnational currency and the existing institutional shortcomings due to the 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 that hasn’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 small budget 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 especially concerned 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 will bail out these sovereign states that are, to an extent, restricted by the euro? PERSPECTIVES 7 March 11, 2010 ● Mount Holyoke News Restricted or empowered by the euro? BY XINYUN ZHU ’13 CONTRIBUTING WRITER Depending on how much the value of the euro is going to fall, it might become very hard for me to afford my education here.The price for tuition has already risen significantly for me from the fall to the spring semester, and if it keeps rising, I might have to apply for a reevaluation of my financial aid. In the worst case, I might have to drop out of Mount Holyoke. —Marion Messmer ’13 from Germany Germany A A SKING SKING E E UROPEAN UROPEAN STUDENTS STUDENTS : : HOW WILL THE DECREASING VALUE OF THE EURO AFFECT YOU YOU ? My country, Norway, isn't formally a part of the European Union so we use the Norwegian Kr and not the euro. The euro's deflation gives me purchasing power when I travel outside of Norway to EU coun- tries, although, on the flipside, it's more expensive for other Europeans to import Norwegian-produced goods and services, and this weakens our trade. —Nina Nedrebo ’10 from Norway Norway Though once believed to be a good balance be- tween economic development and environmental pro- tection, the Europe Union’s carbon trading system is now 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 an incentive to power plants and heavy industry corpora- tions to cut down on their carbon emission levels. 40 euros per ton is the floor price at which carbon trade can induce companies to either advance their emission machinery or look for alternative energy sources to re- duce carbon emissions, and the current price is way below that. Thus, this pricing situation compromises the EU’s goal of reducing carbon dioxide and global warming. The carbon trading system, launched on Jan. 1, 2005 by 15 European Union member states in response to the Kyoto Protocol and also known as cap-and-trade, has been a great success so far. In the year of its launch alone, 362 tons of carbon were traded. In this system, companies are limited to a certain limit of car- bon emissions and if they exceed that limit, they can buy more carbon credits from a company that hasn’t used up its permitted amount. In that way, a company has the choice of either cutting down the amount of car- bon emitted using innovative technology and alterna- tive energy or buying more carbon credits. According to Jen Christiansen, who teaches environmental eco- nomics at Mount Holyoke, “this system figures out the cheapest way to reduce carbon emission.” The failure of the Copenhagen climate con- ference in December to come to any spe- cific agreement on carbon reduction resulted in the falling demand for car- bon credits in 2010. The Copenhagen conference originally set as a goal carbon reduction that would increase the de- mand of carbon trade. However, no further pressure was put on the market. What is more, the economic downturn led to a continuous drop in carbon price. According to Christiansen, carbon dioxide reduc- tion is an international problem that requires global collaboration to construct a feasible framework. The United Nations has been working toward this goal through a series of summits and discussions starting from the Kyoto Protocol to the latest Copenhagen con- ference. But though well developed in Eu- rope, the carbon trade system is not always an 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 professor Gilbert Metcalf, carbon tax is combined with a reduc- tion in the payroll tax, thus encouraging companies to either pay the tax or to reduce their own emission lev- els. In Europe, where more politicians are aware of the destructive 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 ’13 CONTRIBUTING WRITER Falling carbon prices prompt Europe to rethink its investment in cap - and - trade Negatively, because the Mace- donian currency is pegged to the euro. It’s more expensive to buy dol- lars now. —Sandra Spirovska ’12 from Macedonia Macedonia EU’s carbon market faces challenges