In recent years, the European debt crisis has raised people’s anxiety for the Euro and whether the Euro is destined to fail has been extensively discussed. This paper will try to investigate the reasons that destabilize the Euro critically and critically policies of the euro zone to avoid the meltdown of the common currency will also be focused.
Current situation &Its causes
Since the inception of Euro in 1999, it has been used as the main currency by euro zone nations, which has 17 member states today. It did not take a long for Euro to be recognized as the second mostly used, traded and reverse currency in the world, but recently Euro has lost its shine, being in a difficult situation.In this part of the paper, we will illustrate why there are dangers about the stability and the efficacy of Euro as a common currency for Europe.
Firstly, the Euro debt crisis is supposed to be the most direct trigger for the recession and bring Euro with severe challenges. The Euro-zone crisis results from a combination of complex factors. Prokopijević(2010)argues that “Fiscal discipline in the euro zone was weak from its creation in 1999, but ongoing economic prosperity limited the damage.”It is not until Greek government revealed its unreal budget data in late 2009 that the euro sovereign debt crisis has been fully aware of. Every member states in euro zone is involved in this debt crisis for being in the same Economic and Monetary Union(EMU) and using the same currency, which indicates that an individual country in euro zone is essentially forfeiting its right to determine how much its currency is worth.(Nowak& Shachmurove,2012)The debt crisis in Greece brings confidential crisis not only to the countries like Greece, Italy and Spain but also to the whole Europe, leading to the unprecedented impact to Euro. The graph below shows how Euro to Dollar exchange rate changes from 2008 to 2010.
From the graph it is not hard to find that affected by the US financial crisis in 2008, the US dollar had been in a period of devaluation by the end of July in 2008 and it began to appreciate even though there appeared to be some fluctuations, especially in the year of 2009. During 2009 and 2010, Euro had been in devaluation at an alarming rate, which to some extent releases the debt pressure of some European countries. Nevertheless, Euro started to rise in the late 2009, which is regarded as the most difficult year for Euro. Because of being in different economic cycles and financial situation, each country has its own reason to be worried. “In many countries, property bubble debts were transferred to sovereign debt as a result of banking system bailouts and government responses to their slowing economies as a result of the post-bubble.” (Nowak& Shachmurove,2012).Thus, whether to devaluate or appreciate the Euro cannot be easily to reach the consensus between nations and it may possibly lead to the unstable of Euro.
Secondly, the depreciation of euro might be...