Will the Euro survive the European banking crisis?

• Author: Hollein, Marie N.
• Position: FROM THE PRESIDENT

Those of us watching the unfolding banking drama across Europe with a combination of anticipation and dread are wondering when the roller coaster ride will end. Reports about susceptible banks, potential collapse and efforts by the European Central Bank to maintain banking solvency have sent the markets into frequent tailspins. I'm sure we'll continue to monitor these wild fluctuations with an eye toward the impact it will ultimately have on the U.S. system.

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One conversation that has started to take place in the midst of this financial insecurity is whether the euro can survive. There have even been some suggestions that the European Union itself is vulnerable. These are monumental concerns, driven by global economic instability that has, in its wake, dragged down the U.S. for several years now.

My own belief is that, despite all of the difficulties, the euro and the EU are resilient enough to withstand them. Targeted regulatory changes and signs of more effective institutional governance will help banks meet their obligations and be better prepared for future challenges.

Tighter liquidity standards introduced through Basel III will require banks to maintain higher amounts of capital to meet future short-term demands. These capital requirements as well as improved reporting standards will affect credit and should eventually have a positive impact on the markets abroad.

Euro Questions, Not New

Questions about the stability and future of the euro aren't exactly new. Recall, back in 1999, the euro was not universally embraced. Many thought it would never get off the ground, and its launch was not a resounding success. But some countries benefitted immediately from the new currency system--Germany and Finland among them--and the value of the euro has remained relatively stable over time.

How the nations that share this currency will ultimately feel about having to continually reach into the cash drawer to bail out struggling neighbors will certainly continue to test the EU's resolve. But that reaffirms one indisputable fact of global financial life: there are no lone wolves anymore in finance and treasury.

In many respects...