The Eurozone And Its Impact On The European Economy

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When the Eurozone was founded on January 1, 1999, it was with the intention of further integrating and strengthening the nations of Europe, both economically and politically. Until recently, it was believed that the euro provided a stable currency with low inflation and low interest rates and encouraged sound public finance. That the use of a single currency increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade, and gives the European Union a more powerful voice in the world. That the size and strength Eurozone would better protect it from external economic shocks, and provide the EU’s citizens a tangible symbol of their European identity, of which they can be increasingly proud as the euro area expands and multiplies these benefits for its existing and future members (European Commission). Furthermore, the participating nations believed that it would cause its least productive members—Portugal, Spain, Ireland, and, later, Greece—to modernize their economies. Previously, when experiencing adverse business cycle shocks, these peripheral European countries used currency devaluations to recover, but did not address the underlying disparities of their economies. The arrival of the euro was expected to force a sound fiscal policy, eliminate the bias toward inflation, and encourage widespread structural reforms (Fernández-Villaverde, Garicano, and Santos, 2013). However, the introduction of the

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