DESCRIPTIVE ANALYSIS OF EUROZONE AND DEBT CRISIS IN GREECE

Abstract

The Eurozone officially known as the euro area is a monetary union comprising of 19 of the 28 European Union (EU) member countries which have adopted the currency euro (€) as their common and sole legal tender. The eurozone came to existence with its first 11-member countries on 1 January 1999. The ECB, which is governed by a president and a board comprising of the heads of national central banks, determines the monetary policy of the zone. The principal task of the ECB is to keep inflation under control. Eurozone members are obliged to follow common monetary and fiscal policies irrespective of the size and extent of their economy, which seems to be pretty impractical in general sense. However, the strength of union is considerable in global scenario. The adverse effects of Global recession of 2008 were felt throughout the world, Eurozone members were also adversely affected by them, 5 of the member nations have to opt for bailout in order to manage their deficits, debts and recovery of falling economy. The Greece Debt Crisis is taken as the model case in order to understand the intrinsic causes for the same. With the crisis unveiling in 2010 accompanied with large budget deficits and pending debt maturities to be refinanced with issuance of more bonds, Greece’s membership in the single currency acted as a lock on the system. Greece found itself without an adjustment mechanism that could have partly alleviated the impact of the crisis. Greece paid the price of this lack of control of its monetary policy in terms of a severe contraction in GDP and living standards.