The Crisis of the Euro - 2010

Abstract

European economic integration began in the early 1950's then passed through several phases until it reached the highest degree of integration - the European Economic and Monetary Union. The new currency, the Euro, was introduced on January 1, 1999 and thus integration was achieved. The introduction of the new currency marked the realization of the optimum currency area theory. Expectations were high. Unfortunately, very soon divergences in fiscal policies among countries proved greater than ex- pected. Divergences of fiscal policies with incomplete freedom of movement of labour force resulted in balance of payments deficits of some countries and finally in the crisis of the Euro which started in Greece in 2010 and spread to Ireland. The danger exists that it will spread even further.