Explain how and why the ongoing crisis in the Eurozone has arisen

Explain how and why the ongoing crisis in the Eurozone has arisen

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The euro as the common currency was adapted for the central process of economic integration of eliminating exchange rate threats and the reduction in transaction costs.

But membership relinquishes monetary powers to the European Central Bank (ECB) where policy tools such as adjusting exchange rates and interest rates cannot be adjusted in times of economic uncertainty

As stated in the European treaties, every member of the EU is obliged to adopt the currency at some point in the future with the exemption from Denmark and the United Kingdom.

With the benefit of hindsight, the establishment of the Eurozone throughout the thirteen years has experienced volatile times particularly in the last few years. …..

This lead to a group of countries with diverging growth potentials as the fiscal discipline was non-existent whereas the monetary discipline was.

This is where the ?? changes in a relative competitiveness are reflected in the dynamics of current account deficits?

Thus the imbalance between sovereign nations would need to be leveled out by an adjustment mechanism and would succeed the original method of currency devaluation in deficit economies against the currency in surplus economies.

Due to the relinquished monetary powers of Eurozone members, exchange rates are fixed and competition is automatically fixed as a result.

On that account, the following set criteria need to be met to adjust imbalances and become more economically integrated (Mundell, 1961). Putting this…………………..