The Eurozone, officially called the Euro Area, is made up of the members of the European Union that use the euro as their official currency. The Eurozone came into effect on 1 January 1999, and today includes 19 of the 28 countries in the European Union. Roughly 340 million people live in the Euro Area, and as Eurozone data suggests, this number is set to rise in the future as new member states join the EU and subsequently the Eurozone. Andorra, Monaco, San Marino, Vatican City, Kosovo and Montenegro – though not officially in the Eurozone – have adopted the euro as their state currency but do not send representatives to the European Central Bank (ECB) or the Eurogroup like other members of the Eurozone. A central president and a board, consisting of heads of central banks preside over the ECB. Together, they govern the monetary policy of the Eurozone with the intention of keeping inflation under control in the area.

Beyond the Eurozone: the Euro’s Place in the World

Aside from functioning as the currency of the Eurozone, the euro has also forged a strong position for itself on the international stage. A currency acts as a way of storing, protecting, and exchanging wealth between countries, organizations, and individuals. The euro is a global currency, meaning it functions in this way on a global scale. Since its inauguration in 1999, the euro has cemented its place as a major international currency that leads all others – except the US dollar.

Outside of the Eurozone, the euro plays a pivotal role in international markets. The euro is by and large used by third-country governments and private actors across the world as their preferred currency for their respective reserves, their borrowing, and for trade. There are a few factors that make the euro an appealing prospect for international financial markets: the sheer size of the Eurozone economy; its welcoming approach to global trade; its dedication to sound economic management; and the concrete objective set by the European Central Bank to implement monetary policies that foster price stability.

Debt, Defaults, and Deficits: Problems in the Eurozone

As soon as the euro was launched in 1999, it amalgamated European economies – creating the largest trade bloc in the world – and instantly became one of the strongest currencies on the planet. However, this auspicious start for the Eurozone and its flagship coin soon had the wind taken out of its sails thanks to sovereign debt crises that were triggered by huge, unsustainable deficits and public debt in a number of slowing second tier economies. The Eurozone sovereign debt crisis began in 2008 after the breakdown of the Icelandic banking system. The broader implications of this collapse were felt across the Eurozone. The most high-profile members that compounded fiscal Eurozone problems with their debt and deficits thereafter were Greece, Ireland, Italy, Portugal and Spain. A messy combination of governments misreporting budget data and the subsequent, sudden drop in investor confidence resulted in bond spreads increasing to unsustainable levels. And, just like that, these countries tripped over themselves and into a downward spiral.

By 2010, amid growing fears of excessive sovereign debt, lenders demanded higher interest rates from those Eurozone members with huge debt and deficits. This aggravated the already fragile situation, and made it harder for those countries to find their way back into the black, or even spot a semblance of light at the end of the tunnel. Taxes were raised, budgets slashed, and social anxiety grew in the Eurozone, particularly in Greece; to such an extent that the nation is contemplating a secession from the EU and Eurozone, also known as the Grexit. We examine the impact of Greece leaving the EU in our downloadable study, Grexit – the Greek debt crisis.

In this study, we demonstrate that a Grexit would dramatically impact investor confidence in Portuguese, Spanish, and Italian capital markets, and lead to a sovereign default in those Eurozone states too. The projected ramifications of this is a 17.2 trillion euro reduction in economic growth in the world’s 42 biggest economies before 2020. For this reason, we think it’s imperative that the Eurozone community works to prevent a Grexit.

There are already a multitude of proposals mooted for solving the crisis to avoid Greece leaving the Eurozone. To help streamline the debate and hear from all sides in a fair, comprehensive manner, we sat down with economic experts to hear their views – you can watch them share their ideas and analyses in our online video, Can We Solve The Euro Crisis?.

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