Inflation - Literature review Example

The markets had assumed that the debt by Euro zone was safe. This made the investors think that all members thereby making them willing to maintain debts even at low interest rates despite countries including Italy and Greece having high debt levels had backed them. After the credit crunching, the investors began being to be more skeptical about the European finances. The other unfortunate occurrence was that the European Union had no strategies in place to deal with the sudden panic. The diagram below shows some debt from Selected European countries between 2007 and 2010.

Pettinger on the economics journal of October 2011, tried to analyze the Euro economic crisis critically where he applied a single currency meant that several of the solutions regarding economic problems could not be used. The most difficult task is to reduce the government borrowing levels while managing lower unemployment and economic recovery. He studied several European economies including Greece, Ireland and Portugal and found the following problems. Pettinger best-suggested solution was currency devaluation.

This refers to the reduction in the value of exchange rates .This would see regaining of competitiveness, reduction of budget deficit, increase employment rates, and aid in economic recovery. Since economic recovery is the key to reduction in budget deficit. He suggested that Countries should stop the use of the Euro and maintain their own currency. Most countries agree that the renewal of the economic growth is vital in saving the Euro (Pettinger, 2012; Pg. 68). The obstacle is that the effects of steps such as having a banking union, the recently agreed rescue plan may have positive effects to the banking system but may not have any effect to raise the competitiveness in the region’s economies.

The second option was inflation, where the country should try to boost