A Crisis in the European Union

Abstract

This chapter will examine the Eurozone. My argument is that the main problem with the Eurozone is institutional. The economic crisis has led to a series of bailouts from national governments. Since 2008, there has been a considerable increase in sovereign debt in the PIIGS (Portugal, Italy, Ireland, Greece and Spain). Prior to the recession, many of these economies could borrow cheaply, but now international confidence has turned against them. Although the crisis is economic, the limitations of the Euro limit the policy responses from national governments. Essentially, the PIIGS must undergo painful austerity measures as a condition of bailouts rather than lowering the price of their currency or inflating their way out of debt. The problems with Eurozone are institutional. Though there are methods to overcome the crisis, they are complicated by the institutional structure of the EU. The 2008 financial crisis and the subsequent recession have highlighted the problems associated with trying to develop a common currency for a region as varied as the Eurozone.