(MENAFN- Gulf Times) The 19-nation euro, for sure, is facing some existential threats. Anti-European Union parties across the continent have gained support from voters; 'withdraw from the single currency is a rallying cry for Italy's Five Star Movement and Marine Le Pen's National Front in France, while Greece is struggling to meet creditors' demands in return for crucial loan payments again. With Britain heading out of the EU, there are regular reminders of how many problems the European single currency has to tackle to stay afloat.
Amid growing doubts over the euro's future, markets are placing bets that will pay out if the risks in the eurozone escalate.
Here's the important question: What is at stake for the Gulf?
All the Gulf Co-operation Council (GCC) countries, except Kuwait, have their currencies pegged to the US dollar. But riding on the back of consistently higher oil prices over the last decade, Gulf countries have built massive fiscal reserves estimated at $2.45tn by the International Institute of Finance. This financial cushion has allowed GCC sovereign wealth funds (SWFs) to invest heavily in Europe.
The peculiar investment pattern of Gulf SWFs makes it difficult to take updated stocks of the assets under their management. But between 2002 and 2006, close to $100bn of the $642bn surplus in these funds was invested in EU countries, especially in the financial sector, according to a December 2012 estimate.
Gulf SWFs provided emergency financing with a number of European banks after the financial crisis in 2008. Between 1995 and 2010, an estimated 30% of their cross-border investment was made in the EU. As of data available in 2015, total assets acquired by GCC private investors and SWFs in the EU was estimated at more than €400bn, making them one of the largest foreign investor groups in Europe.
GCC policy makers are envisaging a non-oil scenario for future generations and returns from overseas assets are meant to sustain their economies during the rainy days. Longer term, to be sure, doubts about shaky euro will weigh on GCC assets in Europe.
These are, for sure, tough times for Europe. Amid growing divides over such issues as immigration, budget discipline and national security together with Brexit risks and an anti-EU American President Donald Trump, economic risks are getting more pronounced for Europe.
Europe's slow recovery from its worst-ever recession hasn't helped either. The euro dropped by the most on record in June 2016 on the surprise decision by British voters to leave the EU, even though the UK is not part of the common currency.
Eurozone leaders say the common currency is now more resilient in the face of shocks. They argue that even if Greece were to fall out of the euro, the single currency would survive. But there's a consistent argument by business leaders, analysts and politicians that the currency's structural deficiencies mean its demise is just a matter of time.
Stakes are high for the Gulf. And GCC policy makers need to plan for any crisis arising out of Europe/eurozone to protect their investments and trade interests.
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