The Eurozone crisis
The Eurozone crisis was not caused by a single factor, it was the result of a compound of errors made by member states in different sectors of the European economy. There are three causes that have been identified as directly leading to the crisis. The problems of competitiveness, debt and the lack of a comprehensive growth model. There are several other causes, but the problems of Greece mirror the problems of the rest of the Eurozone. In order to fully evaluate and understand the causes of the Eurozone, it is necessary to first look at the way Greece’s debt rose to 112.9% of its Gross Domestic Product (GDP) by 2009. This was the first asymmetric shock in the Euro, but it wasn’t seen as cause for concern at the time it was revealed. Another major issue that needs to be evaluated is the blatant ignorance of the rules of the Maastricht treaty rules about deficit spending and sovereign debt. This laid a poor foundation for the financial stability of the European Monetary Union (EMU) and its ability to absorb asymmetric shocks. There are doubts about whether or not Europe is an optimal currency area and what makes an optimal currency area, economists have argued over this for some time. The OCA will be evaluated in more detail in this essay. There are a lot of lessons to be taken away from the Euro Crisis, lessons that could help prevent future crises arising from asymmetric shocks, some of these lessons will be evaluated in this essay. Throughout this essay, references will be made to the Greek debt crisis as a case study for the wider issues in the Euro crisis. When the Maastricht Treaty was signed in 1992, there were clear rules about sovereign debt and a limit on the level of deficit spending a member state could have within their budget. This is part of the Euro convergence criteria, which every member state has to adhere to in order to become a part of the Euro. However, Greece and Italy allegedly did not meet these criteria, but by masking their deficits and
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