European Union and Euro Currency Crisis

European Union and Euro Currency Crisis

One of the major long-term issues that have damaged the euro is the fear about whether the governments in Greece, Portugal, Ireland, Spain, and Italy will honor their $4.2 trillion debts (Burgen, 2012). Failure to honor these debts has far reaching consequences on European banks which own these countries debts. Struggling banks are likely to suffer investors' confidence and credit. Countries that are beneficiaries of credit from these banks have come up with austerity measures that have been synonymous with recession (The Economist, 2011). This has further deepened the fears that governments would be less likely to honor their debts. This has further weakened the banks. In spite of the fact that the euro zone has the capacity to run on its banks and governments bearing in mind that it has the backing of the European Central Bank (ECB), it has blatantly failed to put forward a convincing euro rescue (The Economist, 2011). Another issue with the euro is that the member states of the EU do not clearly understand what euro crisis is all about. The member states are also at odds regarding what each country must contribute towards solving the euro crisis. Defending the euro will be a mirage away as long as member states cannot settle these arguments (The Economist, 2011).

A number of short-term issues contributed to the problems of 2011. The European Union commission was too overzealous in upholding competition. There can be no healthy competition between countries with establish market economies and those which have none. The European Central Bank and some flourishing economies within the EU have on several occasions failed to step in to avoid euro crisis for fear of appearing to encourage countries to evade reforms (The Economist, 2011). This was the probable reason why the EU never stepped in early enough in Greece's situation. The ECB also fear that reigning in countries suffering from euro crisis to come up with austerity measures to streamline the ballooning public debts might lead to populists that turn away from the euro. The problems of 2011 were also contributed by the fact that the Economic and Monetary Union (EMU) with the core mandate of banishing competitive devaluations, failed to deliver on promises that it was deliver like binding a unified Germany into the EU and paving way for political union in Europe. Matters have been worsened by the fact that the member states of the EU are at loggerheads (The Economist, 2011). In fact, the link between the Euro and nation states like Germany can best be described as fraught.

The GDP of the 28-strong European Union stagnated in 2013. However, there are chances that the GDP might expand by 1.4% in 2014. The economic prospect in the 17-strong euro area was very grim in 2013 considering that the GDP in the whole area fell by 0.4%. The GDP is projected to rise by 1.1% in 2014 (The Economist, 2014). Some of the countries that will register the strongest growth in GDP in 2014 are Latvia, Lithuania, and Estonia.