This paper discusses whether the recent economic crisis should be taken as a sign of a systemicfailure of the unified currency system and reason for its breakup. It analyzes three prevailing policies: 1)the status quo (as of winter 2010); 2) complete dissolution of the Eurozone (as requested by the client);or 3) adoption of the proposed European Stability Mechanism and revisions to the Stability and GrowthPact
. I analyze the three policies based on three goals: the effectiveness of policies promoting futurestability and growth, measured
through each policy’s effects on crisis prevention and management;
effects of the policy on economic unity of the European Union, particularly focusing on current Eurozonemembers and the costs of implementation, as measured by difficulty of political reform and potentialeconomic shock. I recommend the adoption of the reforms recommended by the European Central Bankenumerated by the European Stability Mechanism and revisions to the Stability and Growth Pact.The current suite of crisis prevention and management mechanisms failed. Regulatoryrequirements failed to prevent periphery members such as Greece and Ireland from amassing debtsbeyond those allowed and prudent for their economies, thereby intensifying the crisis. The EU furtherexacerbated the crisis by not immediately taking steps to rescue the economies. While breakup wouldhave not prevented overspending by periphery nations, it could have allowed them to pursue policiesapart from their neighbors which could have mitigated their deficits earlier. The proposed reformswould have placed stricter requirements that could have eliminated the risk altogether by eliminatingthe possibility of amassing such deficits.Under feasibility, most calls for dissolution do not account for the political difficulty of implementing such a policy. According to the charter, adoption of the Euro is permanent andirrevocable. The dissolution of the Euro could result in an economic crisis far more detrimental any crisisthat the Eurozone fails to avoid. The status quo discussed in this paper is defined primarily by a lack of
This memorandum assesses policy options that were available but not yet adopted before December 2010.