The Eurozone since its birth has been marred by problems and challenges that are eliciting the feeling of anger, disappointment, and frustration among members. The challenges in this region emanate from the absence of a suitable institutional framework upon which the Eurozone cooperation was formed. The use of a dated cooperation framework has been a significant impediment to the attainment of regional integration and growth. There has been exploding the debt and the structural weakness in growth due to weak competitiveness (Chu, 2018). The Brexit scenario is a classic example of failed integration while the crisis in Greece shows a failure to meet economic growth objectives. The use of a single currency, the Euro, by member states has been widely cited as a significant challenge.
The single currency in the Eurozone has driven a wedge in member states where the ‘north’ seems to prosper while the ‘south’ suffers. The competitiveness gap in both regions drives the situation. Parity in the economic status in the Eurozone would require maintaining relative competitiveness to its members (SWP Berlin, 2018). A loss in competitiveness requires interventions oriented toward regaining competitiveness. Competitiveness is measured by changes in the real exchange rate that is indicated by a country’s current account. Deficits in current accounts result in the deterioration of the country’s’ net international investment position (NIIP). The implication of negative NIIP results in unsustainable foreign debt poor performance in the financial market.
The crisis in Greece was attributed to this situation imposed on by the single currency (SWP Berlin, 2018). The net imports of Grease were ballooning resulting in a situation where the foreign debt-to-GDP ratio became unsustainable. When Greece’ current accounts were running in deficits, there was a decline in the amount of money that was circulating. Additionally, the exceptionally high inflation levels when the Euro was introduced put Greece at a disadvantage, and the country was forced to impose austerity measures that are part to blame for the Greece crisis. High inflation induced real currency appreciation which resulted in a ballooning of imports while impeding the growth of exports hence the abovementioned deficit in the current account.
- Chu, B. (2018). Euro at 20: What lessons can we draw from two decades of the single currency? Independent. Retrieved from https://www.independent.co.uk/news/business/analysis-and-features/euro-twentieth-anniversary-1999-analysis-single-currency-crisis-dollar-a8705256.html
- SWP Berlin. (2018). The Euro paradox: Explaining the resilience of the single currency. SWP Working Paper. Retrieved from https://www.swp-berlin.org/fileadmin/contents/products/arbeitspapiere/AP_012018_EuroParadox_Tokarski.pdf
