Euros fall from grace

With external debt burden of euro zone economies soaring to intolerable levels, it has clearly not been the best of times for the Euro which has dropped 22 percent in the past two years.
However, signs are emerging that this financial crisis could push the end button on Euro zones economic woes as the tables may turn soon for the troubled bloc, at least in the short term.
A lower euro means expensive imports and cheaper exports. It could help trigger the largely dormant euro zones manufacturing sector, and ensure a decrease in trade deficits.
For long, Europe has suffered from cheaper imports especially from Asia and Africa, whereas Euro-zones relatively expensive labour could not produce enough competitive exports. Despite all of this, what must not be forgotten is the fact that Europe had been the worlds economic leader for a number of decades owing to a number of factors.
The Euro-zone countries have higher literacy rates, strong administration and functioning institutions compared to much of Asia and Africa. These elements give an advantage to attract investment and increase exports by exploiting its weak currency.
Though, export recovery may help the Euro-zone take a positive turn in the short-term, it doesn mean that things will be hunky dory for the region overnight.
Demographic pressure caused by an ageing population threatens to deepen the regions problems of labour availability. Plus, the region doesn have a very flexible immigrant policy, which means it doesn have the kind of comparative advantage enjoyed by the United States.
Another aspect where the EU lags behind the US is its slowing levels of creativity. This together with the demographic structure means that an export-led recovery on the back of a weak currency cannot help the Euro-zone to roar back again.
As long as the problem of humungous government debt stands as a rock. Spain, Portugal, Italy, Greece and Cyprus will be among the few Euro-zone economies with very weak fundamentals, and many doubt both the governments will and capability to enforce strict austerity policies.
Will the current bailout package prove to be another Marshall Plan remains to be seen.