The Euro crisis

The European Union is currently in a deep crisis because of the Euro. It is the single currency of 17 European Union’s member states which together make up the so called Euro area. Indeed, in early 2010, the euro crisis began with the Greek debt crisis where the cost for financing government debt was sharply rising. This crisis caused a crisis of confidence as the fear of a sovereign debt crisis in Portugal, Ireland, Italy and Spain was increasing.
In this analysis of the Euro crisis, we will first look at the Eurozone’s principles and weaknesses in order to propose solutions to bring back stability and growth within the Euro area. What would be the best solution to implement taking into account the interest of each State within the Euro area?
The Eurozone’s principles and weaknesses
There is no doubt that the current economic and financial crisis spotlighted to the world the weakness of the Eurozone. The major problem of the Eurozone is that there are one currency and one central bank but with 17 governments to coordinate. That is why, the European Union created the Stability and Growth Pact (SGP) to facilitate and maintain the stability within the Eurozone. Member states had to present an annual budget deficit lower than 3% of GDP and a public debt no higher than 60% of GDP. Before the financial crisis, the SGP seemed to have succeeded in increasing the harmonization between the various member States’ national budgets and economies. However, the financial crisis spotlighted the hidden weaknesses of the Eurozone principles.
Indeed, in reality, during the financial crisis, the Maastricht system failed to maintain stability and to reduce huge economic disparities between euro member states.
To begin with, have a look at the theory of the economic cycles on the budget deficit level (which is one of the principles of the Growth and Stability Pact. Between 1999 and 2009, the economy can be divided in periods of booms and busts). During boom