Survival of Eurozone Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Macro Economy:

Marco economy is the economic system of a country or a whole region. The macroeconomics deals with the performance, structure as well as decision making of an economy as a whole.

What have been the strengths and weaknesses of the Euro zone economy?

Strengths:

The first strength is that it has no barrier to trade, financial flows, and migration within the European Commission (EC). The free flow has made the economy border that has increased the market very large and economies of scale can follow along with synergy effect in the economy.
The EU is one of the strongest economies in the world that contributes 23% of the world’s nominal GDP to 7.3% of the world’s total population. The European economy has great potential as they combine economy makes it possible to grow.
Free trade and non-tariff barriers have helped to reduce the cost to the consumer; it has increased purchasing power for less expensive imported goods from European countries as compared to other regions of the world.
European Union countries are almost among the highest Human Development Index (HDI). The countries under EU are performing in an excellent manner for their achievement in the social and economic dimension.

(benefits of European Union, 2007)

Weaknesses:

The countries under EU are following two laws, one is their local country law and another one the law made by the EU. The countries are facing difficulties in following two laws that can contradict each other.
Free movement of labor has created an overcrowding in the UKbecause of higher wage rate payments in the UK along with a higher living standard in the UK. This overcrowding does hit UK’s economy.
The decision making of local communities is overlapped by the decisions made from EU council, the effects are bureaucratic. The decision causes demonization in the local communities.

(Europe disadvantages)

Analysis of market organization, institutional framework and economic structure of Eurozone in last decade:

There was a Christmas treaty formed the European Union and laid the road to monetary unit was signed in 1992.

In 1998, it was mutually agreed by eleven countries to meet the convergence criteria to adopt the single currency by maintaining fiscal deficit under 3% of GDP and limiting government debts to 60% of GDP.

In the last decade, institutions were willing to but the sovereign debts were issued by the government of other countries and local government to have a secured investment. The government of any country of Eurozone had an option to go to other countries to borrow debts.

Strategies implemented to make Eurozone a dominant global player:

The first strategy was single currency as the mean of exchange in the zone. The decision was taken to make Euro as an international currency and the trade with European countries was done through the transaction of the Euro.

The second decision was the free flow of funds in Eurozone given an opportunity for those companies that used to seek debts for the development in their country opened the doors to reform the zone and its economy boosted at that time.

The decision of the Swiss reserve bank to have a fixed exchange rate of 1.2 Francs equals to one Euro, Switzerland has strong economic and fixed exchange rate has made Euro most attractive in the world.

Currency:

Financial Challenges for the development of the Eurozone and the one currency Euro:

The first challenge was to convince European countries to accept a single currency unit. This was not acceptable by every country, therefore it was a problematic situation to convince all of them.

Survival of Eurozone Case Solution

Finland, Sweden and Norway stopped trying to peg their currencies and attacked ERM. Ireland, Portugal and Spain had to devalue their currencies in this respect and Italy was forced to let the lira float.It also crashed the GBP.

In 1999, the fiscal deficit of 3% and limiting government debts at 60% of GDP to need to adopt a single currency system. However, this was challenging for those poor countries that requires debts and cannot meet GDP requirements of their current position.

The valuables crisis was made in the Eurozone structure as the total assets of European banks was 200% to 400 of the GDP, this caused higher inflationary effect due to free fund movements in European countries......................................

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