Can the Eurozone Survive?

In: Business and Management

Submitted By Ali1010
Words 1706
Pages 7
From more strongly integrated financial markets, to the potential for a unified European identity, the Euro certainly brings many advantages to Europe. However, the political and economic instability that both caused and was caused by the Euro crisis threatens the further perpetuation of this currency.
The onset of the Euro crisis came about when the Greek government admitted to a budget deficit much larger than they had previously divulged. Interest rates skyrocketed and, despite efforts to reduce spending, Greece ultimately fell bankrupt.
Concerns over the decline of a state that represents only 2.5% of the EU’s GDP could have been redressed, had it not been for inflexible provisions of the Treaty on European Union. The “no-bailout clause” did not permit the EU or any national governments to undertake the debts of another state, a rational but perhaps detrimental provision in 2010. Moreover, one may argue that the Eurozone was in jeopardy from the start when more than half of its members did not meet the debt limits. The Stability and Growth Pact, an instrument created to monitor these debt limits, was quickly ignored. Even Germany and France, the EU’s most influential members, regularly exceeded deficit allowances and thus smaller states like Greece were able to build debt unchecked (see Appendix A).
If the EU had taken more decisive actions in early 2010 to remit significant loans to impose austerity measures on Greece, the world’s confidence may have quickly revived. Instead, Greek bonds were downgraded and investors began to fear the subsequent decline of other southern states. Danger loomed for Spain and Italy as they experienced stagnant productivity growth with wages increasing by 42% and 28%, respectively, within eight years. Still maintaining relatively high interest rates, banks in Germany and elsewhere saw profitable opportunities and flooded these…...

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