Crisis in the Euro Area

Introduction

The eurozone, officially known as the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro (€) as their common currency.

After 1998, when eleven European Union Member States had met the convergence criteria, the eurozone came into existence with the official launch of the euro on 1 January 1999. Greece qualified in 2000 and was admitted on 1 January 2001 and between 2007 and 2011, five new states acceded.

The euro area currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

The European Central Bank (ECB), which is governed by a president and a board of the heads of national central banks, is responsible with the monetary policy of the zone. The main task of ECB is to keep inflation under control.

The Euro Group is composed of the finance ministers of the eurozone states, although in emergencies national leaders can also form the Euro Group. This group is responsible of the political decisions regarding the eurozone and the euro, due to the fact that there is no common representation, governance or fiscal policy for the currency union.

The first signs of instability for the global financial markets became visible in 2007; they were related to the late 2000's subprime mortgage crisis in the US that crippled the value of structural financial products related by the banks and other financial institutions around the world. However it was believed to only be affecting financial institutions that were heavily exposed, dependent on the wholesale markets for their financing or had investments in structured finance products.

In September 2008, the global financial crisis erupted and was followed by the most serious worldwide economic recession for decades. As in many other regions of the world, governments in the euro area stepped in with a wide range of...