International economics - Essay Example

Fixed Currency Regime Introduction The euro is the official currency of the Eurozone. The Eurozone is a union of 19of the 28 member countries of the European Union. The euro is the second most traded currency in the world as well as the second largest reserve currency after the United States Dollar. The Euro is managed by the European Central Bank based in Frankfurt Germany and the Euro system which comprises of the Central National Banks of the countries within the Eurozone. The adoption of the Euro brought advantages as well as disadvantages to the countries in the Eurozone; this paper is going to discuss how this affected Portugal Greece and Spain.

DiscussionThe main advantage of this system was the elimination of the costs of converting currencies and exchange rates uncertainties. This system also brought with it increased transparency, efficiency, and inward investment. Among the disadvantages was the one size fits all policy. When one country was doing badly and the rest were booming economically, the central bank might be interested in increasing the interest rates, this would make the situation worse for the country experiencing a recession.

Also some countries may be reluctant to improve their economy with the hope that countries doing well would bail them out.ConclusionPortugal, Greece and Spain have been the poor performers of the Eurozone. These countries have shown the disadvantages of having a fixed currency regime. Ever since these nations adopted the Euro, they have been unable to implement the required measures for independent monetary policy in order to mitigate the effects of an economic downfall in the Eurozone. European Union leaders have been giving stabilization packages to bail out these countries and maintain stability in the Eurozone but these countries are still lagging behind.

Despite the many advantages a fixed currency regime has to offer, Portugal Greece and Spain prove otherwise Reference Lapavitsas, C. (2012). Crisis in the Eurozone. Verso Books.