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Was the euro ever 'about to collapse'?

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    Trichet: The euro as currency is stable

Trichet: The euro as currency is stable 03:27

Story highlights

  • Former European Central Bank chief says euro was never going to collapse
  • In 2012, critics predicted at least partial breakup of 17-member eurozone
  • Euro plunged to 25-month low against U.S. dollar in July 2012
  • Currency war fears prevail in run-up to G20 finance ministers meeting this week

Less than six months ago, eurozone watchers had been predicting the breakup of the 17-member bloc of nations as the euro plunged to a 25-month low against the U.S. dollar last July.

Even as recently as November, Warren Buffett, the famed CEO of Berkshire Hathaway, said of the eurozone's future that "it's hard to tell exactly how it comes out."

But since then, the euro has appreciated nearly 11% as its member countries battled to contain sovereign debt crises, rising unemployment and social unrest. The euro now stands at a 13-month high against the greenback.

And flying in the face of last year's critics, former European Central Bank chief Jean-Claude Trichet told CNN's Nina dos Santos that the euro "was never about to collapse" and that its viability as a currency is solid.

"The euro as a currency has never been put in question," asserted Trichet, while at the same time admitting the euro area's financial stability and credit worthiness had been tested.

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As for the euro, he said it "is certainly reliable and credible."

    Yet, the euro's gains over the past seven months is a mixed blessing. Arguments have long-existed for and against a stronger currency. Appreciation means investors are more confident in the euro but eurozone exports become more expensive when sold overseas; devaluation makes the bloc's exports more competitive globally, which many eurozone officials would prefer.

    But if the world's major economies devalued their currencies to make exports more competitive and to spur their economies to growth again, it would be chaos, says Trichet.

    "If the reasoning is the same in all constituencies you have nothing but...a 'beggar-thy-neighbor' policy which is a recipe for catastrophe."

    That catastrophe could take the form of an all-out currency war. And this week, the world's leading banks called on the G20 group of richest nations to avoid such an outcome.

    "We believe major central banks should focus on enhancing their cooperation...to guide market expectations and thus help avoid a disorderly interest rate adjustment process and undue exchange rate volatility," the Institute of International Finance wrote in a letter to Russian Finance Minister Anton Siluanov, who is chairing the G20 finance minister's meeting later this week.

    But with the eurozone in recession for the second time in four years, the desire to devalue the euro may be strong. The European Central Bank in December cut its 2013 growth forecast, with a best-case growth rate scenario of only 0.3%.

    "It is no time for complacency," warned Trichet who added that the central banks of the United States, Japan and Europe as well as their private sectors should get their "house(s) in order."

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