Order the answer to: When the euro was launched, countries with typically weaker curr

Academic Help business economics Order the answer to: When the euro was launched, countries with typically weaker curr

business economics

Order the answer to: When the euro was launched, countries with typically weaker curr

Question When the euro was launched, countries with typically weaker currencies or fiscal discipline benefited from the discipline of one currency and a strong, single central bank. No longer would investors fear, for example, that Greece or Spain would pursue inflationary monetary polices, as monetary policy was decided by the European Central Bank. As a consequence, the stability created by the euro with the strong influence of Germany recognized for its monetary and fiscal prudence benefited the traditionally weaker countries. As investment picked up worldwide in 2003, funds poured into a wide range of countries in the Euro-zone, fueling real estate and construction booms in Ireland and Spain, and financing a wide range of projects in Italy and Greece. As their economies boomed, prices and wages were driven up substantially. But when the investment boom came to a crashing end, these countries needed to make adjustments as their wage and price structure was out of line. But their options were limited because, as members of the Euro-zone, they could not depreciate their currencies. As a result, they were faced with the prospect of either making major budgetary adjustments, cutting spending or raising taxes, or a prolonged period of unemployment to reduce wages and prices. In 2010 Greece faced a major financial crisis as its budgetary imbalance was particularly severe and investors demanded major readjustments. Currency depreciation would have been a much easier solution for Greece in this situation, but this was no longer possible. This is a downside to a single currency for a collection of countries whose economies and political cultures differ sharply
Subject business economics
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