Running Head: Can the Eurozone Survive? Harvard Case Solution & Analysis


Macro-Economy:  Historically, what has been the strengths and weakness of the Eurozone economy?    Analyze the market organization, institutional framework and economic structure of the Eurozone during the prior decade (1990-2010).  Critically evaluate the strategies implemented to make Eurozone a dominant global player.

            Eurozone is defined as one of the largest economic regions of the world. Eurozone comprises of about 19 European Union countries. The currency of the Eurozone economy is the euro and this sis same for all the member countries of Eurozone and it is the most liquid currency in the world. This currency has been continuously appreciating over the time and it is taking a significant position within the reserves of the central bank.

            On the other hand, if we talk about the weaknesses of the Eurozone then many weaknesses could be identified that have come up with the passage of time. There was a prohibition placed upon the European central bank that it could not buy the bonds that are issued by the government and also could not lend to the governments. However, this had a limited impact on the Eurozone economy. As the governments introduced or issued the bonds in the primary market on Monday, then the same issued bonds could be bought by ECB on Tuesday in the secondary market.

            During the 2008 financial crisis, the ECB had a very weak mandate in order to act as a lender of the last resort. This was because the officials were troubled to buy the sovereign bonds. Further, the crisis of Eurozone had also occurred due to its structure and also the Eurozone governments lacked all the authority so that they could print the euros to rescue the troubles banks during the Eurozone crisis.

            The common currency of Euro was adopted on 1ST JANUARY 1999 by 11 countries. The main reasons for currency union were to make the role of Europe more strong in the monetary system of all the countries of the world and also so that the European market could be unified. The whole system was established in three stages.

The first stage in 1990 increased the level of cooperation between the central banks, for the capital transactions a complete freedom was given and economic convergence was improved. Then in stage 2 in 1994, the European monetary institute was set up, monetary policies and economic convergence were strengthened, national central banks made independent and the pub sector was banned to receive credit from the central bank.

 Finally, the in the third stage in 1999, euro was introduced with conversion rates being fixed, single monetary policy was established and the entry was initiated into the growth and stability pact. This was the economic structure and institutional framework for Eurozone economy.

As a result of the Eurozone crisis the European Union member have met in order to devise a convincing plan to overcome the situation. A new fiscal treaty was developed by the European Union leaders to enforce the stability and growth pact treaty which was a good plan. Further, all the governments were allowed to limit their structural deficits which meant that those debts that were not higher than 60% of the GDP and deficits of not more than 3% of the total GDP would be the limit on these deficits.

Running Head Can the Eurozone Survive Case Solution


Currency: What have been the financial challenges for the development of the Eurozone and the one currency Euro?   Explain analytically (using numbers, chart, and graphs), what are the implications of Euro-Currency as a competitor for U.S. Dollar? Critically examine the potential implications of Euro-Currency from the recent actions of SWISS central bank, breaking form the Euro-peg?

            A lot of financial challenges were faced at the time of the development of the euro currency and the Eurozone itself. The sovereign debt had been exploded at the time of the Eurozone crisis in the year 2009-09. In some of the countries there was also poor competitiveness and the structural growth weakness.

            At present the external environment is proving to be a lot more supportive. This is because the export demand is bolstering and the overall interest rates in the countries are decreasing. However, previously at the time of the development of the Eurozone, the political consensus was the main challenge faced among all the countries. For instance, the quality of the financing, the structure of the debt and the concrete forms of the austerity reforms and measures had all created many challenges for the development of the Eurozone..........................

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