European leaders vow to defend weakened euro

The leaders of Germany and France say they must strengthen the euro in 2011 to ensure the unity of Europe. The currency suffered in 2010, as some European economies faltered.

German Chancellor Angela Merkel threw her weight behind the euro in her New Year’s message. “The united Europe is the guarantor for peace and freedom,” she said. “The euro is the basis of prosperity, and Germany needs Europe and the common currency.”

The French president echoed her remarks in his message, saying the euro is here to stay. But the currency had a rocky time last year.

Both Greece and Ireland needed financial bailouts and there may be more on the horizon, says Hamish McRae, a commentator for the London newspaper The Independent. “There is an immediate problem, which is what do you do about the sovereign debts of the weaker Euro-Zone countries: Spain, Portugal, Italy, conceivably Belgium,” McRae said.

To reduce debt, many European nations instituted austerity measures, cutting back on government services and spending. That sparked demonstrations and strikes throughout Europe with more promised this year.

Weak European economies were the focus of an EU summit in December. Leaders agreed to change the treaty that governs the bloc to set up a permanent mechanism for addressing sovereign debt problems, but the change will not take effect for three years.

Traders are watching closely to see what economic decisions European leaders make to stabilize the euro. McRae says the currency is not in immediate danger. “I am confident that the euro will survive for now. I think that the balance of probability is overwhelmingly is it will not survive in the long term unless, unless there is total political union within the Euro Zone,” McRae said

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