Can the CFA Weather the Euro Storm? in a Worst-Case Scenario, the Battered 13-Year-Old Eurozone Could Break-Up, Creating Difficult Policy Options for the 14 Economies of Africa's Franc Zone Whose Currency, the CFA Franc, Is Pegged to the Euro. Is Africa's Franc Zone Braced to Weather the Storm in the Event of a Euro Break-Up?

Beginning of article

Continued efforts by European leaders at numerous summits in 2011 to restore confidence in Eurozone public finances have been viewed as largely ineffective. They attempted to inject fiscal discipline and make the European Financial Stability Facility (the EU's rescue fund) for troubled sovereigns, fully operational. The euro also recently plunged to its lowest level ($1.29) against the dollar in 18 months. London-based Lombard Street Research states predicts that "Europe's current approach to its crisis will fail."

[ILLUSTRATION OMITTED]

A new set of stringent budgetary rules, to form a 'fiscal compact', may be hard to impose on Italy and Spain, which need to borrow a combined total of [euro]59obn in 2012 to refinance maturing debts. The new pact commits Eurozone members to 'structural' fiscal deficits of just 0.5% of GDP - compared to the previous target of 3% of GDP under the Stability and Growth Pact which failed to control rising deficits over years and where penalties were usually waived. The last summit in December 2031 did not specify the penalties for non-compliance. This vague accord may not be ratified by some national Parliaments (notably Greece) and might not be enough to keep the euro intact over 2012.

One major worry is that proposed caps on government borrowing would hinder economic activity and make it even harder for stricken …