The demise of the euro has been rumored for months, and Europe's sovereign-debt crisis ginned up a cloud of speculation this year that the currency would "collapse." This sort of talk has abated since the EU established its so-called bailout fund in May, but observers tend to agree that a trillion dollars in financing bought the euro nothing but time.
So the currency's future is still obscure. But "collapse" is a dramatic word. It's also not very specific. What on Earth does it mean?
The immediate fear last spring was a partial dismantling of the euro zone. Before the bailout package, it looked as if Greece might have to leave the currency union. That would have represented a major continental shakeup, a shift of weight within the currency, a painful bureaucratic chore, worry on the financial markets, and a lot of impractical expense. It would not have meant the end of the euro itself.
The German finance minister, Wolfgang Schäuble, even recommended a means of orderly retreat from the euro for countries with intractable debts. His proposal shouldn't have been so controversial, in theory, since the euro itself is built of treaties and agreements that imply contingent membership: "Keep your budgets in line, or else." But the agreed-on penalties tend to be fines, not expulsion, so contemplating the unprecedented logistical nightmare of currency exile for Greece or Portugal or Spain led to chitchat about "collapse."
The other vision of collapse that made the rounds had to do with a steep fall in the euro's trading value. The financial world grew so accustomed to a euro near $1.50 that a price of $1.20 (its most recent trough) looked like catastrophe. It's true the euro may never see $1.50 again, now that European sovereign debt has been so fully exposed. But $1.50 was an overheated price anyway. The European Central Bank aimed for dollar parity when it introduced the euro in 2002, and the exchange rate moved off-balance when Washington — as governments do — gunned for advantage in a trans-Atlantic trade war.
"Recent complaints in Europe about the euro's 'decline'," William Pfaff wrote in March, "have simply reflected its move back towards its original dollar parity, in part the result of a deliberate American policy during the Clinton and George W. Bush years to keep the dollar cheap, to the advantage of American exporters."
Even 10 or 20 cents is a long way for a currency to fall, of course, and eight years on financial markets can feel like a millennium. So the word "collapse" has been used, over and over, for the euro's return to earth.
Oddly, the most nightmarish vision of a euro collapse may be the most inevitable. Reuters columnist Felix Salmon produced a War of the Worlds-style radio piece for the BBC in May conjecturing a series of events that brings about a second, weaker European currency. Italy, Greece, Portugal, Spain and later France default on their sovereign debts in Salmon's little science fiction story, and decide to re-denominate everything into "neuros." That leaves a stronger bloc of economies, led by Germany, to forge ahead with a leaner edition of the euro.
That's nothing but a sketch of a "two-speed Europe," which some Europeans have predicted for years. In Salmon's story it comes about during a dramatic month and a half, complete with panic on the markets and riots in the streets. A more orderly version of the same future could still be in the cards. One resolution to the strain at the heart of the euro is a pair of currencies — northern and southern, solid and weak — to give heavily indebted European countries more latitude to solve their problems.
David Marsh, author of The Euro: The Politics of the New Global Currency, believes the currency will be "different" within the next five years. He isn't sure how. "I can't say whether it will be because the strong countries have cleaved off somehow," he told me, "or the southern countries have left. But a year ago, I would have said that after 10 years, the euro would look quite different from today. Now, I would say that's likely to take place in the next five years."
One word he neglected to use, however, is "collapse."