Financial Crisis and Its Asymmetric Macroeconomic Impact on Eurozone Member Countries

Article excerpt

Abstract The purpose of the paper is to analyze the dynamics of EMU (The Economic and Monetary Union, i.e., the group of European countries who use the common currency euro) and to analyze the fallout from the recent financial and economic dynamics. Both the impact on the eurozone as a whole and on individual member countries will be evaluated. The first 11 years of Eurozone experience will be discussed and evaluated in the second section. The third section will then be devoted to analyzing the fallout from the recent financial and economic dynamics. Both the impact on the eurozone as a whole and on individual member countries will be evaluated. The last section concludes and provides some ideas for future development of eurozone.

Keywords Eurozone * Common currency * Economic crisis * Asymmetric macrocconomic impact

JEL E42 * F33

Introduction

The purpose of this paper is to analyze the dynamics of EMU (The Economic and Monetary Union, i.e., the group of European countries who use the common currency euro) and to analyze the fallout from the recent financial and economic dynamics. Both the impact on the eurozone as a whole and on individual member countries will be evaluated.

The euro as a common currency was introduced for cashless transactions on January 4, 1999 in 11 countries. The conversion to euro in the form of notes and coins followed on January 2, 2002. The euro became the sole currency for all purposes in these 11 countries on July 1, 2002. (This is the date when the validity of pre-euro national currencies ended in all founding countries.)

During the 11 plus years of its existence, the group of European countries solely using the euro and participating in euro governance--commonly called Eurozone (the term which will he used in the following discussion)--expanded from the original 11 to today's 16. (The original 11--Germany, France, Italy, Spain, Netherlands, Belgium, Luxemburg, Austria, Finland, Portugal, Ireland--were joined by Greece in 2001, Slovenia, Malta, and Cyprus in 2008. and Slovakia in 2009.) At this point, it is useful to remind ourselves that the set of existing European treaties require all current EU members except U.K. and Denmark to adopt the euro, i.e., to join the Eurozonc. However, the timeframe of actual euro adoption is, and will be, jointly determined by EU and the individual country, with no ex ante timeframes.

The first 11 years of Eurozone experience will be discussed and evaluated in the next section. The following section will be devoted to analyzing the fallout from the recent financial and economic dynamics. The impact on the eurozone as a whole and on individual member countries will be evaluated next. The final section concludes the paper and provides some ideas for future development of eurozone.

The Euro: The First Eleven Years (1)

The introduction of the euro in J1 countries on January 4, 1999 was greeted with high hopes by some and with apprehension and uncase by others. Ten years later, during the first half of 2008 (note, before the real impact of the European Economic and Financial crisis became obvious to all), the creation of the common currency was celebrated as the one of the greatest achievements of the European integration process not only economically, but politically as well (EC, 2008). At the same time, a wide range of analyses were published which evaluated the first 10 years of the euro's functioning as a single currency.

An overwhelming majority of opinions regarded the first (albeit incomplete) decade of the euro experience as positive. Even if the hopes of accelerating European economic dynamics and improving pan-european economic conditions were only partially realized (see the text and data below), in the international comparison the results were perhaps more than respectable.

Looking at the period 1999:1 to 2008:1 (the Eurozone economy reached its historical maximum at the first quarter of 2008), the average annualized quarterly GDP growth for the Eurozone (EU12) was only slightly below that of the USA (2. …