The Euro in Crisis: Decision Time at the European Central Bank Harvard Case Solution & Analysis

Case Overview

The case highlights the problems of European Central Bank (ECB) which it faced while deciding whether to bail out Greece or not. Regulating the price stability within Eurozone and making sure that euro was being protected, was the ultimate objective. However, overriding with the fiscal matters of the country could have resulted in disappointing the economy and transferring the message that the country can take help from ECB if it is unable to take care of its fiscal matters.

For negotiating the financial policies, the financial minister was no longer needed to feel the stress within their countries, because another body was set up to handle any failure in the financial matters and invest money that would even the situation, but this was not encouraged. For receiving a bailout, Spain and Portugal were strong contenders, since they were larger than Greece, their bail out would not be easily absorbed.

The case gives a clear understanding of how a common currency came into being and from the 1992 Maastricht Treaty which proposed a single currency for all the European states provided they meet a certain criterion called the “euro”. Euro was launched as an accounting unit in 1998 and then as paper currency in 1999 with England and Denmark having negotiated a separation from being euro members.

The new currency was met with criticism and skepticism, but gradually it carved a place for itself and proved that it was to become a stable currency. The case also outlines the roles of France and Germany being the largest economic players who would play a major role in financing the bailout as the Greek economy sank further and further. As the Greek tragedy unfolded, the case describes ECB was left to decide whether to intervene or not?

Analysis

To gain better understanding of the case and to examine the stakeholders within the state of affairs, the initial evaluation is either to coin a single currency for the European countries was a good decision, particularly in the era of globalization. In the current era, globalization is a growing phenomenon and has emerged as a vital part of life.

Similarly, economic scenario also gets affected by the globalization phenomena. There are a number of initiatives to describe globalization, and Geneva Center for Security Policy (GCSP) has taken a vital initiative. Al-Rodhan has brought the idea of economic integration, and argued that it is one of the most significant roles in promoting economic integration. (Al-Rodhan, 2006).

Though, an ample study has been conducted and provided definitions of globalization. Some authors have formulated the accurate definition that explains globalization. It refers to the process of including the root causes and outcomes of both ethical and unethical activities of trans-cultural and transactional behaviors.

Euro currency provided several advantages to the world. One of the essential advantages is that it offers gateways to create a global economy; certainly not formulated after its preamble. On the other hand, on less developed nations, the ripple effect has been relentless with trade portals and opening up investment for them, and turned out to be a strong means of currency reserve for the country. However, the euro zone has emerged as more tolerant to sudden changes and economic shocks because the currency is more stable and resilient.

Several stakeholders and regulatory authorities predict the predictable disasters, together with certain extents may include the economic harm away from the Euro Zone. Euro was greatly criticized; however, within the initial tenure of ten years, Euro has risen to the state and been the reason of several opportunities and strengths. According to Yotopoulos the single market was created and emerged as the currency more efficiently, in compared to its individual counterparts. (Yotopoulos, 2004).

Cross-border transactions, transparency problems, several risks and extra costs were eliminated, subsequent to single currency introduction. Within the business of European countries, it is probable that the lowest price goods can be found and the greatest value of investments and service are carried out in a safe and wholesome way (Barry, 2003).

Euro has not been able to cover an absolute rosy image; in addition, there are few disadvantages yet hidden in it. Beginning with its membership criterion brings into play in the Maastricht agreement is being infringed by the present members and there have been prevalent outrages as there are no rapid actions being taken against them at failing onsets.

Moreover, Greece has been considered one of these constituents who if had been warned or curbed of enhancing their financial position from the very beginning might not have directed to the bailing state. (Schuman, 2012)...............................

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