Euro Crises Essay

22355 Words Sep 30th, 2013 90 Pages
THE EURO IN CRISIS
Objective Of Study
The objective of the following study is to understand and analyse the recent euro debt crisis which led to the temporary fall of the euro. Through this study, attempt has been made to single out EU member countries and the events in those countries that led to the crisis. Policy recommendations have also been stated to further help the main objective of dissecting and understanding the problem.
INTRODUCTION
Over the last two years, the euro zone has been going through an agonizing debate over the handling of its own home grown crisis, now the ‗euro zone crisis‘. Starting from Greece, Ireland, Portugal, Spain and more recently Italy, these euro zone economies have witnessed a downgrade of the rating
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But, like a violent heart attack, the interruption of credit—the economy’s life blood—lasted long enough to permanently damage the industrial countries at the center of the crisis. The damage took three main forms, each of which poses a major risk to the stability of the global economy today: high and rising public debts, fragile banks, and a huge liquidity overhang that will need to be eventually withdrawn.
The Euro crisis, which strikes at the heart of the world’s largest trading block, contains only two of the three fateful elements—problematic sovereign debt in Greece and other vulnerable countries, and fragile European banks, which hold a large part of that debt. Monetary policy in the Euro area and in industrialized countries more generally, remains expansionary and, if anything, the crisis pushes back the time when tightening can occur safely. As a result of the problems in Europe, the world economy has become even more exposed to the three mega-vulnerabilities.

THE EURO ZONE: A BRIEF BACKGROUND
On January 1, 1999 eleven European countries decided to denominate their currencies into a single currency. The European monetary union (EMU) was conceived earlier in 1988–89 by a committee consisting mainly of central bankers which led to the Maastricht Treaty in 1991. The treaty established budgetary and monetary rules for countries wishing to join the EMU - called the ―convergence

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