Date of Award

6-2017

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Eshragh Motahar

Language

English

Keywords

eurozone, european market, euro, PIIGS, Economic and Monetary Union

Abstract

Now in its 18th year of existence, the European single currency - 'the most daring act of integration since the launch of the European integration project' - is facing its biggest challenge yet. Greece, Portugal, and Ireland are still experiencing economic hardships, even after receiving substantial bailout packages in order to avoid defaulting on their debt. Italy and Spain - 'the third and fourth largest economies in the Eurozone' - are close behind, combining high public debts, large budget deficits, and low growth. Germany and France, considered the most robust economies of the Eurozone, are feeling the strain of supporting their weaker partners in an attempt to save the euro. The economic importance of this crisis is that the future of Economic and Monetary Union (EMU), the Eurozone, and the European economic integration, is at stake. After a decade of economic preparations and convergence in light of optimal currency area criteria, these Eurozone countries had an extraordinary opportunity to pave the way for rapid economic development and modernization, with sustainable growth rates, and new, open, and high quality economic and political institutions after joining this common currency area. Although the economic environment was truly favorable, the ability to exploit these advantages properly for countries, specifically the PIIG countries, was largely based on two major conditions: maintain fiscal discipline and sound finances, while increasing the productivity and the competitiveness of their respective economies. Despite all the PIIG countries failing to maintain fiscal discipline, certain PIIG countries, such as Greece, failed to maintain competitiveness in international markets through depressing wages and productivity enhancement. After the examination of productivity, unit labor costs, hourly wage rates, and net export performance as a percentage of GDP of Germany, France, and PIIG countries, I find that certain member countries, such as Greece, would be better off leaving the Eurozone, allowing it to regain control over its exchange rate in order to restore its competitiveness in international markets.

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