WHAT IS THE FUTURE FOR THE EUROZONE?
FUTURE FOR THE EURO ZONE
Definition
its a group of countries which use the {euro} as their common currency. The Euro zone came into being in 1999, and originally consisted of 11 countries. As of 2009, 16 countries were part of the Euro zone. The Euro zone does not include every country.I n the european union(some countries are not yet using the Euro), and does not include every country who is using the Euro (to become part of the Euro zone, the country must use the Euro as its sole leg currency).

The current slowdown is likely to hit countries such as Spain and Italy hardest - according to Lehman Brothers, ‘The Spanish economy is the clearest victim of the credit crunch, just as it was the main beneficiary of the credit boom'.

Spain
Has reduced its level of government debt significantly in recent years, and so has some room for maneuver in terms of fiscal policy.

With the Spanish housing market in rapid decline, and unemployment soaring to over 10%, as well as Italy experiencing negative GDP growth in the last quarter of 2007 and 2nd quarter of 2008, there are no expectations of a let-up in the near future.

Italy
Has no such luxury - with public debt still amounting to around 103% of GDP. However, the Italian government is still looking to use fiscal stimuli to boost the economy, through bonds from the European Investment Bank, to circumvent the 3% limit imposed on budget deficits under the Maastricht Treaty.
Ireland, too, is suffering from a housing ‘bust', but, thanks to its relative competitiveness’ and, in terms of growth, robust starting point should not see the recession which is imminent in these other two economies.

Portugal,
on the other hand - which had recently been showing signs of recovering from a relatively long period of slow growth - has found itself stifled, with predictions suggesting that growth will stay below around 1.5% until 2011.
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Denmark experienced a quarter of contraction at the start of 2008, and GDP growth is expected to remain below 1% for the next two years, due to low investor and consumer confidence, despite unemployment being low, at around 3%.


There only two ways out of this crisis for the Euro zone –
It could pull countries closer together,
Or
It could break them apart.
That may be right. But in past European crises, there's usually been a muddle-through option - that's what many Euro zone governments are hoping to get away with now.
Crucial to how this turns out will be Germany - where many are furious at the way things have gone. They don't like the idea of bailing out other countries at all.
Bailing out Greece - a country that only qualified for the Euro on dodgy budget numbers - is about as bad as it gets.
The German chancellor has told them they have to support the massive new safety net for the zone, because the future of the Euro is the future of Europe - and of Germany.
.
Nearly all the growth the Germany economy has had in the past 10 years has been from exports - most of them within Europe. German exports to Greece have risen by 130% in the past 10 years. Greek exports to Germany have risen by less than 10%.
German and French officials also tend not to mention that it was lending by their domestic banks and investors that helped Greece, Spain and others to live so long beyond their means.
The biggest economies in the Euro zone are rallying round the big support package agreed in early May, because they think a default by a European government could be bad for everyone. But it's also because they know it would be particularly bad for the French and so, everyone really wants to find a way to muddle through. But if the Euro zone is going to get through this without radical change it's going to have to find a way to grow.
Spain, Greece, Portugal and the rest all now face a long hard slog re-balancing their budgets - and their economies. To make the numbers add up, they need a strong domestic recovery elsewhere. Right now no-one can promise they will get one.
Many countries have seen their industrial sectors hit particularly hard by lower than expected growth in demand internationally, as well as the current strength of the Euro.
In terms of a comparison with Euro zone countries, Many countries have seen their industrial sectors hit particularly hard by lower than expected growth in demand internationally, as well as the current strength of the Euro.

In terms of a comparison with Euro zone countries, British GDP growth is expected to fall fairly firmly, with predictions from Mervin King of ‘the odd quarter or two' of contraction over the next eighteen months, and consumer confidence falling dramatically .
Conclusion

· Parts of Euro zone lacked political will or ability to keep implicit and explicit fiscal policy in line with long term stability.
· The Euro provided the opportunity to have a credit boom while the world economy was smooth. Wages and pensions were out of line in both public and private sector.
· Fiscal policy should have been much more co unter cyclical.
· Now, when credit boom comes to an end, we see some parts of Europe postponed change and situation cannot persist Unless a miracle occurs at the level of the global economy.
· Calls into question the Euro zone logic the idea that Euro creates credibility and change behavior


Presented by: Amana Bharaj
(MBA 1 A)
Presented to; Mr Gurdeepak Singh

References: investopedia & wikipedia..