Although the Euro Zone Has a Unified Monetary Policy, It Does Not Have a Unified Fiscal Policy, Is Such a Situation Sustainable? Address This Issue Using Greece and Ireland as Case Studies.

Topics: European Union, Eurozone, Euro Pages: 3 (1058 words) Published: May 30, 2012
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Although the euro zone has a unified monetary policy, it does not have a unified fiscal policy, Is such a situation sustainable? Address this issue using Greece and Ireland as case studies. From late 2009, fears of a sovereign debt crisis developed among investors concerning some European states, intensifying in early 2010. This included eurozone members Greece, Ireland, Italy, Spain and Portugal, and also some non-eurozone European Union (EU) countries. Iceland, the country which experienced the largest financial crisis in 2008 when its entire international banking system collapsed, has emerged less affected by the sovereign debt crisis. In the EU, especially in countries where sovereign debts have increased sharply owing to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany. While the sovereign debt increases have been most pronounced in only a few eurozone countries, they have become a perceived problem for the area as a whole. Concern about rising government debt levels across the globe together with a wave of downgrading of European government debt created alarm in financial markets. On 9 May 2010, Europe's Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). In October 2011, eurozone leaders meeting in Brussels agreed on a package of measures designed to prevent the collapse of member economies due to their spiralling debt. This included a proposal to write off 50% of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion and requiring European banks to achieve 9% capitalisation. Despite the debt crisis in a number of eurozone countries the European currency remained stable, trading even slightly higher against the Euro bloc's major trading...
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