Eurozone and Sovereign Debt Crisis-VRK100-05Oct2011

Eurozone and Sovereign Debt Crisis

What is Eurozone?:

Those European Union (EU) member states that have adopted the euro as their single currency are part of the euro area. A single monetary policy for the euro area is conducted by the European Central Bank (ECB) under the responsibility of the Governing Council of the ECB. Euro area is informally known as eurozone. The euro was launched on 01 January 1999 on foreign exchange markets, and euro currencies replaced national currencies on 01 January 2002.

There are now 17 European countries in the eurozone, with a common currency, the euro, and a single interest rate set by the ECB. Estonia is the seventeenth country to adopt euro as its currency with effect from 01 January 2011.

The full list of eurozone countries is as follows: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

The European Union (EU) was established on 01 November 1993 after the ratification of the Maastricht Treaty by the member states. It was previously known as the European Economic Community (EEC). It is a political and economic union of the member states, mainly consisting of European nations. It aims to provide a single market for the member states. Its important institutions include the European Commission, the European Parliament, the European Court of Justice and the European Central Bank.

The EU is an amalgam of 27 Member States. It consists of:

Ø      17 eurozone nations (given above); and

Ø      10 other nations – Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the United Kingdom – which have not adopted euro and continue to use their own national currencies.

Sovereign Debt Crisis in eurozone:

 Ø      The Governments in the eurozone, like, Greece, Italy and Spain, are facing the problems of sovereign debt crisis caused by huge government debt 

Ø      These governments are unable to meet their debt obligations

Ø      Some analysts are afraid that some countries (Greece, Portugal or Spain) may default on their debt obligations

Ø      Several European banks require massive capital funds

Ø      Growth in the eurozone is very low fuelling fears of recession

Ø      Unemployment is generally very high in the eurozone

Ø      There are fears of a break-up of eurozone

Ø      Some countries in the eurozone are living beyond their means for a decade or so