University of Twente Student Theses


Is the ESM able to manage the challenges of the euro area as a non-optimum currency area currently being in a heavy crisis?

Coenen, G. (2013) Is the ESM able to manage the challenges of the euro area as a non-optimum currency area currently being in a heavy crisis?

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Abstract:As a consequence of disregarding the fiscal rules laid down in the Stability and Growth Pact for years in combination with the increasing macroeconomic imbalances within the euro area and set of by the global financial and economic crisis since 2007 the European sovereign debt crisis has escalated to an existential crisis of the euro. To overcome this crisis several measures like the temporary euro bailout funds EFSM and EFSF haven been taken, but without a convincing effect. Besides Greece, Ireland, Portugal and Cyprus as well as big euro member countries like Italy and Spain have increasingly come into trouble. The Eurozone threatened to break up with incalculable consequences and dangers for the global economy and financial system. Only since the decision to install an permanent euro bailout fund called ‘European Stability Mechanism‘ (ESM) and extensive interventions by the ECB in 2011-12 the situation of the euro area could have been stabilised and fairly calmed down. However neither the crisis is over yet nor the reasons for the crisis and the structural problems of the euro area are solved up to the present day. The future of the euro area and the economic welfare of its member countries now depends on the implementation and the outcome of the measures that have been taken. Against this background the present thesis deals with the ESM. The research question and the aim of the work is to investigate if or how far the ESM is able to manage the challenges of the euro area as a non-optimum currency area currently being in a heavy crisis. In the centre of the thesis are two leading questions. The first question applies to the way how it actually could have come to the escalation of the crisis and how the foundation for the ESM came about. This is done by descriptive historicalgeneric methodology. The second question treats the ESM and its possibilities to fulfil its tasks to compensate the deficits of the euro area to solve the current crisis. This is done by empirical-analytic methodology. The research design of the thesis is about descriptive research. Initially the thesis treats with the theories of optimum currency areas (OCA) (chapter 2). First the separate criteria of the OCA-theories are presented (2.1). After that it is investigated how far the euro area applies to these criteria by giving an overview of the present research (2.2). The following chapter examines the current European sovereign crisis and the way to the foundation of the ESM (chapter 3). The description of the crisis of the euro is divided into several prior warnings (3.1), the reasons for the crisis (3.2), the course of the crisis and previous measures (3.3), the interventions by the ECB (3.4) and the criticism of these measures (3.5). The next part deals with the European Stability Mechanism (chapter 4). It contains the conception of the ESM (4.1) and its possibilities of task fulfilment (4.2). The financial capacity (4.2.1) and instrumental possibilities (4.2.2) are especially explored. Furthermore numerous different ways of criticism of the ESM are explained and reviewed (4.5). At the end of the thesis the conclusion contains an analysis of the strengths, weaknesses and limits of the ESM and tries to give an answer of the research question by summarising the findings of the work (chapter 5). 4
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:88 social and public administration
Programme:Public Administration BSc (56627)
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