America 's Largest Currency Changeover Occurred

The Maastricht criteria for convergences is a criteria for which European Union member states are required to meet to enter the third stage of the European Monetary Union (EMU) and adopt the Euro as their currency (Viskovic, 2012). The criteria includes five rules which act as instruments of macroeconomic stabilisation (Bukowski, 2006), which were implemented to avoid destabilising the EMU by the premature admission of countries whose underlying economic performance was not yet compatible with permanently fixed exchange rates. These criteria have been used as conditions since the implementation of the euro in 1999, however, even before the recent euro crisis there has been speculation about the effectiveness of this criteria.

The financial markets provided easy access to liquidity to these countries assuming that self-discipline in macroeconomic indicators, such as current account deficits, would be exercised by them to retain their membership in the European Union under the Maastricht Treaty. On the other hand, there was little accountability to ensure the implementation of the

For example, the fiscal rule is conceived to be adopted if the annual structural balance is coherent with the country specific medium-term budgetary objective (MTO) which as stated in the Stability and Growth Pact (SGP) to lower limit of structural deficit of 0.5% of Gross Domestic Product (GDP) and part of preventive arm and plus it also require a “rapid convergence” in order to confront the crisis. (European Central Bank 2012)

The Maastricht treaty laid out certain, strict qualifications a state had to meet in order to join the European Union; these requirements were to prove that the nation’s economy was strong. Despite the entering guidelines, a single currency cannot fulfill the needs of differing countries in the real world. A major issue of the Euro was a low interest rate, which caused many countries to borrow a large amount of money in order to pay off their national debts; Starting in 2008 and continuing today some countries have started defaulting on their loans and have called for a bailout. Of the nineteen countries that currently use the euro as currency, several have called for a bailout such as Greece, Ireland, Portugal, Spain, and Cyprus. (European Union, “The Euro”)

When the financial crisis hit, the expenditure in various member countries resulted in problems. Debt levels in Portugal, Italy, and Greece

Did you know that beginning in 1826 and ending in 1932, Greece has had a grand sum of 5 defaults? That’s only in modern history! According to Investopedia.com, Greece has had a history of financial troubles since the first default occurred in the fourth century. To top it all off, Greece has spent ninety years which is almost half of the time since it’s independence in a financial crisis? This all leads up to the longheld debate between many citizens of this country and many others that may possibly be affected by this tough decision. At the peak of Greece’s financial crisis, (as of 2016) over 314 billion euros in debt, many are fighting over whether or not they should return back to their original, national currency, otherwise known

During the 2000s, Greece had plenty of access to cheap capital that was fueled by flush capital markets and increased confidence of the investors in the economy following the adoption of the euro in 2001. During this period, the capital inflows were not used to increase the competitiveness of the economy, and European Union (EU) rules which had been designed to limit the accumulation of public debt failed to do so. The global financial crisis of 2008 – 2009 strained public finances as well as subsequent revelations about falsified data drove up Greece’s borrowing costs. Early in 2010, the Greek government made a very devastating decision to default its public debt. The European Union, the European Central Bank, and the International Monetary Fund officials have all agreed that an uncontrolled Greek default could trigger a major crisis.

In 1992 the Maastricht Treaty was developed by the European Union and signed by 12 member nations to create a common Euro Zone. This Euro zone uses a single currency called the Euro, in hopes that this currency will make transactions across all member nations’ trade and exchange easier. However, no one could have imagined how big of an impact the down fall of a nation’s deficit could have on the Euro Zone, until Greece signed the Maastricht treaty in 2002. When the Greek government came on to the Euro Zone, Greece’s budget deficit and spending habits came along with it too. In order to join the Euro zone, Greece prevented the Euro zone countries from knowing its true budget deficit, inflation, interest rates, and other monetary

Maastricht Treaty created the Euro. As per the treaty the economy deficit level of the country was already predefined for those countries who were willing to enter euro zone. But Greece entered the European union with a budget deficit that exceeded the allowed threshold. The Greek government borrowed

To begin with, the countries initially joining the euro were too heterogeneous, showing broad differences not only regarding their economic structure but also considering their budget practices and civil approaches (Feldstein, 2011). Moreover, differences regarding production structure, qualifications of the labour force as well as capital stock are considerable (Fürrutter, 2012). However, in order to make a single currency work, adequate similarities between the countries adopting the currency are required. The more similar countries are, the more will a common interest and exchange rate suit all. For this reason, the convergence criteria were created and had to be fulfilled upon entry to the Eurozone. Providing general criterion for price and exchange rate stability, continuous and flawless public finances, the Maastricht criteria aimed at safeguarding the country’s ability to adopt the single currency (European Commission, 2015). However, exceptions were made and even countries that did not meet the admission standards of a budget deficit below three percent of GDP and a national debt below 60 percent of GDP – in particular, Italy and Spain –

Greece became the focal point of Europe’s debt crisis after the financial collapse in 2008. With global financial markets still reeling, it was announced in 2009 that Greece had been understating its deficit figures for some years, raising soundness about the unassailability of Greek finances. By 2010, Greece was heading towards bankruptcy, which threatened to start out a new financial crisis.

The conditions installed by Maastricht (McCormick, J.2011) set the standards for future accessions of countries, so that the Eurozone would be sure not to take on any troubled economies. The conditions were as followed; 1/ The inflation rate of the country must be “no more than the average of the rate in the three countries with the lowest inflation rate.” 2/ the budget deficit must be “ no more than 3 per cent of GDP and its national debt no more than 60 per cent of GDP.” 3/ the country’s long term interest rate was to be “no more than 2 per cent of the average of the rate in the three countries with the lowest rates.” 4/ lastly the country’s currency must not have been “devalued against other member states’ for at least two years prior to monetary union.”

Subsequently months after being out of the limelight, Greece has just returned to the forefront as an imminent reimbursement deadline on its latest consignment of rescue-package loans. Greece’s relations with Europe are in a delicate state, and quite a lot of it is significant. The origins of the existing emergency were propagated over 20-30 years ago, and the present condition is just the indication of the essential complications that have not been fixed. Basically, Greece was jammed in an inflationary spiral which would only remain in the absenteeism of trials undertaking the original difficulties facing the Greek economy. Greece became the focus of the dues after the catastrophe of Wall Street crumbled in 2008. In 2009 it was said that

To be accepted into the Eurozone, a country needs to pass the Maastricht criteria. In total, there are five economic issues that are related to admittance. The qualifications include interest rates, government debt and deficits, inflation, and the country must be a part of the European Exchange Rate Mechanism for a minimum of two years. These criteria had the intention to promote stability within the union and avoid financial hardships that reach extremes like present day Greece. Of the required criteria, Greece had struggled the most with their fiscal standpoint. Their budget deficit was drastically more than the 3% of annual GDP maximum, and their debt was already 100% more than the annual GDP 10 years prior.

Thus, this highlights the utter hypocrisy of the current negotiations surrounding Greece: both France and Germany, in fact, conveniently ignored the rules for the fiscal convergence criteria when it suited them. Neither country was sanctioned in a major way. France could well find itself in the firing line if it fails to prevent a Greek exit from the single currency. The sustainability of the current membership of euro has, therefore, not been laid to rest.