Eurozone Crisis

The euro zone crisis

Its dimensions and implications

M R Anand *

GL Gupta

Ranjan Dash

January 2012

* M.R. Anand, Economic Adviser and GL Gupta, Asst Director are with the Dept of Economic Affairs (DEA), Ministry of Finance and

Ranjan Dash is Fellow, ICRIER. Comments may be sent to - anand-pc@nic.in.

Content

Page No.

Foreword

3

Disclaimer and acknowledgements

4

Abstract

4

Introduction

5

The Euro Zone: A background

Creation of the Euro: its Justification

Convergence, cohabitation and divergence

From the global crisis to the Euro zone crisis

5

9

The rescue: creation of the EFSF and the ESM

Some critical dimensions of the EZC

13

A monetary union without a fiscal union

Structural differences

Cross border lending

Decision making in the Euro zone

Implications and Possible directions

16

Implications for the advanced countries:

Euro zone crisis and the EMEs

Possible directions

Concluding observations

19

References

19

Annex tables

20

Endnotes

22

2

Foreword

In the rush to produce urgent policy documents and briefing notes that any

government has to do, it is easy to let matters that may not be quite as urgent to go

unattended. However, the not-so-urgent often includes matters of great importance

for the long-run well-being of the nation and its citizenry. Research papers on topics

of strategic economic policy fall in this category. The Economic Division in the

Department of Economic Affairs, Ministry of Finance, has initiated this Working

Paper series to make available to the Indian policymaker, as well as the academic

and research community interested in the Indian economy, papers that are based on

research done in the Ministry of Finance and address matters that may or may not be

of immediate concern but address topics of importance for India’s sustained and

inclusive development. It is hoped that this series will serve as a forum that gives

shape to new ideas...