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The Euro - Essay Example

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The Euro

For instance, Germany has been accused to have benefited from the economic integration at the expense of other states like Greece and Italy, which have experienced enormous economic turbulence (Arestis 23). Many parties have argued that the absence of action by the euro leaders could worsen the euro crisis. There are, however, diverse arguments on whether the euro should be maintained or not. It is imperative to note that the genesis of the euro problem is from both the government and the private sector. In Greece, for instance, the government mismanaged their finances despite the large amount of borrowings that it had made (Lynn 123). The loans were thus misappropriated instead of being placed in productive areas. The debt problem in Ireland, on the other hand, arises from the private sector – for instance, from the banks, which continue to lend to unproductive investments. Those who were granted loans from the financial institutions were, therefore, unable to finance their loans, and this led to a financial contagion within the sector. From both cases, it is crystal clear that the contribution of the financial sector to preventing currencies from collapsing or to controlling the economic performance is enormous. The first school of thought contends that failure to take decisive actions could result into the spreading of the problem to other countries, which are still considered healthy. Consequently, the interest rates on government could rise, leading to an increase in the level of government debt. This could reach a point in which some countries could stop using the euro, thus aggravating the crisis. It, therefore, means that productive intervention and informed decisions made by the member countries would make the euro regain and flourish while failure to take appropriate actions could impair the existence of the euro (Soros 168). In addition, European Union should advocate for a reduction in budget deficit among the member unions to eclipse the euro from further depreciation. This move will ensure that the debt level is kept as low as possible. Reducing the budget deficit implies that countries will not take more loans to meet their financial obligations and thus will save the euro from disappearing (Arestis 36). Another strategy that can be adopted is the use of the “European Central Bank canon” to ensure that the debts in each of the member countries are shared among all the other member nations and that they do not resort to bailouts and budget cuts. This strategy aims at substituting the national bonds with a euro bond. In this case, countries which are financially weak will have a lower spread in which they will be made to repay their loans in extended periods of time while the nations with stronger financial background will enjoy a premium when borrowing (Soros 181). This measure will see ECB repay the intoxicated debt and reduce the burden of the most affected countries. It is, however, expected that countries like Germany and France will definitely oppose such a move, as it will amount to committing a political suicide. Countries which are financially strong will view this as interference and claim that such an action does not reduce inflation or solve the debt crisis. They would further argue that this could lead to complacency in the member states facing higher financial crisis. Merkel will instead demand that there be fiscal ...Show more


Date The Euro The debt crisis that has rocked a significant province of Europe has resulted in the intervention from economists, traders, politicians, and investors regarding the need to rescue the euro from potential collapse…
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