How does the Euro work?

How the euro became a broken dream

Excerpt:

Creating a currency which could be used across such disparate economies was always a difficult task. The idea for a single currency was promoted by Jacques Delors, a former French minister of finance, who held the European Commission presidency from 1985 to 1995.

The aim was to stamp a European identity in the markets, bringing, among other things, price stability, growth and trading benefits. The Delors report of 1989 defined a monetary union objective as being, in part, a "complete liberalization of capital movements."

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The Greek economy has been in trouble since the country joined the euro, due to a mix of overspending and inability to raise enough revenue. In 2004, it admitted that the country's financial position was worse than reported and had breached the eurozone entry requirements.

By 2008 the government had narrowly passed a belt-tightening budget, designed to trim its massive national debt burden, triggering massive protests. In 2009, Greece admitted its deficit would be more than 12% of gross domestic product -- far higher than previous estimates and more than four times the requirements of entry into the eurozone.

The country was hit with ratings downgrades, pushing its sovereign bonds into so-called "junk" territory, and the damage continued to spiral. Despite the introduction of brutal austerity measures -- which have prompted waves of violent protests -- Greece has been unable to balance its books. There is a risk it could be forced out of the eurozone.

Comment: Good article on the history of the Euro and the Greek problem