What are the roots of the present crisis of the euro Essay

What are the roots of the present crisis of the euro - render ExampleThere are good promises about integrating the euro zone into one currency policy. nonpareil of the reasons why there are umpteen countries engaged themselves into this one-currency policy is to substantially address the need of their thrift to rise up above any other. However, behind all of these promises are some limitations that need to be taken into consideration (Provopoulos, 2010). One of the limitations is the substantial loss of the ability of a participating nation to tick off its individual domestic monetary policy. other is losing its ability to change the nominal exchange rate of its currency. It is therefore clear that with the optimum currency area policy there could be no signifi dopet region of uniting the euro oddly with the presence of weaker economies because the euros market strength would eventually be dragged down (McGuinness, 2010). Another main reason why the euro crisis comes into a significant issue in the euro zone is the failure of stableness and Growth Pact to ensure fiscal discipline (Provolous, 2010). This is clear in the case of Greece in which its debt to gross domestic product ratio had risen to 12.6 per cent which is extremely above the required maximum of only 3 per cent. This resulted to the bail-outs of Greece and Irish Republic which has become the major topic in the recent euro crisis (BBC News, 2011). The Greek government is promising a good opportunity for everyone. This entices investors to invest in its economy and in return the government substantially does its vanquish in the process. However, this led to increase in government spending which made it highly covered with debt. assess is an important pecuniary source of the government. However, it would be impractical to increase tax rate because this would only throw out investors to go to countries with low taxation rate. The worst case scenario is that this would just only encourage inv estors to falsify financial information just to save them from paying high tax rate. This is the reason why the Government especially in the case of Greece to result to borrowing just to meet its obligation. In realness, it is hard to redistribute wealthiness by increasing tax. This would only result to other complex problems that would help aggravate the situation. However, in reality it is not only Greece doing this same strategy but it includes Portugal, Italy, Greece, and Spain. These countries are also known for overspending and borrowing for many decades just like Greece. Considering that these countries would be unable to pay their debt, and then the present crisis of the euro will be obdurate and could hardly challenge the US dollar as the leading currency in the world. Government intake therefore is the leading driving force allowing the rise in the share of government spending. This is evident in the case of some European countries in which government spending increase d from 43 percent to 50 percent (Provolous, 2010). It is therefore important that investments in high-value added sectors should be maintained and this can only be realized by the reduction of bureaucracy and rigidities in the labour, product and service markets (Provolous, 2010). Another root cause can be traced to the problems underlying a one-size-fits-all monetary policy. One significant problem is the issue of political and cultural differences among participating European countries (Hughes, 2010 Provolous). Unlike with the unite States, there is no central fiscal authority in the euro area. This central fiscal authority is viewed to importantly contribute to redistribute fiscal resources. Furthermore, unlike in the United States, cultural differences particularly in the language make labour a less mobile in euro area. Labour is particularly important in the euro area. However, this is continuously challenged by the cheap labour in China. This significantly increases the cha nce of investors to gain more in China. Thus, this leaves behind the euro area. Specifically, it was very clear that it reduced its employment