Euro Zone

Eurozone is called the Euro area, started in 1998 and consist of 17 countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The Eurozone have adopted the common currency call the Euro. The monetary policy of the Eurozone is control by the European Central Bank. When I think about Eurozone, I often think of a powerful union consist of many rich countries; and there is not likely chance of getting into financial crises. In 2007, there was an on going financial crisis that happened called the European Sovereign debt crises. The crisis made some countries in the Eurozone difficult or impossible to repay or refinance their government debt. The crisis have affected heavily on Eurozone and also made them face the risk of getting separate. In this paper, we will looking at the cause of the crisis and also find out some possible solution for the problem.

In the beginning, we will look at the Eurozone currency. Is Eurozone an optimal currency area? In 1979, the European Monetary Systems was launched when European Community fixed their currencies exchange rates around to European Currency Unit. After that time, there are many debates about whether or not the Eurozone is an optimal currency area. Optimal currency area is “the geographic area in which a single currency would create the greatest economic benefit”. A certain area has to qualify some criteria to be able to identify as optimal currency area. Those criteria are: labor mobility, price and wage flexibility, financial market integration, economic openness and similarity in inflation rates. There are several study have been made to examine the Eurozone currency. Eurozone is not an optimal currency area since it is not fulfill all of the criteria. Even though it may have many characteristics of an optimal currency area.

Robert Mundell pointed out that “ an essential ingredient of a currency area