THE SOCIO-ECONOMICAL EFFECTS OF WORLD FINANCIAL CRISIS ON EUROZONE

Ph.D. Assistant Professor Isabella - Cristiana Sima, Ph.D. Assistant Professor Camelia - Aurelia Marin

University Constantin Brancoveanu, Piteti, Romnia, i_onescu@yahoo.com

Abstract The European Union is an economic and political union of 27 member states, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community. A common currency, the euro, has been adopted by sixteen member states that are thus known as the Eurozone. This zone was very affected by the world financial crisis, but not like the other states which dont belong to it. Because of that the problem which occurred was if it is better to belong to Eurozone or not. As an important man said, the world crisis has shown that it's safer to be with the strong, among the strong and to have influence on the decisions of the strong.

Keywords: European Union, Eurozone, world, crisis, effects 1. Introduction EU Economic and Monetary Union (EMU) is an agreement between the participating European nations to share a single currency and a single economic policy with a set of conditions of fiscal responsibility. Currently, there are 27 Member States with varying levels of integration in the EMU. Sixteen Member States have adopted the euro: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, Slovakia and Spain. Three other Member States, United

Kingdom, Denmark and Sweden, they weigh on euro adoption plan. Eight Member States, Latvia, Lithuania, Estonia, Poland, Czech Republic, Hungary, Romania and Bulgaria, are in various stages of adopting the euro and most likely will join the euro area over the next ten years. Plans for a single European currency began to be outlined early in 1969 with Barre Report, prepared by the then six member states of the European Economic Community (EEC). This was followed later that year a meeting of heads of state and government in The Hague to plan the creation of economic and monetary union. The process was delayed by the collapse of the Bretton Woods System in 1971 after President Nixon's unilateral decision to make necovertibil dollar gold after the 1972 oil crisis. Currently, European countries participating in the three phases can be integrated economic, historical phases of development corresponding to EMU. But this monetary union has suffered great changes amid financial turmoil that hit the whole world. 2. Euro Zone The name Euro was formally adopted on 16 December 1995 and entered the currency markets itself on January 1 1999, replacing the so-called European currency unit (ECU), and then, on January 1 2002 was brought into service, replacing the Finally the national currencies of the euro area. One euro is divided into 100 cents, and cents appointed Romanian-speaking countries or lept () in Greece. Andorra, Monaco, San Marino and Vatican City also use the euro, although not formally members of the euro, even EU members. (They used before coins were replaced by the euro.) Of these, Monaco, San Marino and the Vatican have created their own currencies, with its own national symbols on the back. Andorra used the French and Spanish coins, since they used the French franc and Spanish peseta as its currency. These countries use the euro due to agreements with EU Member States (Italy where the principality of San Marino and Vatican City, France if Monaco), approved by the Council of the European Union. Montenegro and Kosovo, which used the German mark as their currency, have also adopted the euro, although, unlike the three above,

not entered into any legal agreement with the EU explicitly to allow this thing. Other places that use the euro are French overseas territories: French Guiana, Runion, Saint Pierre and Miquelon, Guadeloupe, Martinique, Saint Bartholomew, Saint Martin, Mayotte, and unhabitated Islands Clipperton and French Southern and Antarctic Lands, autonomous regions Portuguese Azores and Madeira and the Canary Islands. Countries that have fixed national currencies against the German mark, ex. Bulgaria and Estonia, and they have set exchange rates against the euro. From February 2nd 2002, litas Lithuanian (LTL) entered into ERM II, exchange rate being fixed against the euro and instead the U.S. dollar. Denmark and the United Kingdom have made an exception, not bound to adopt the euro. Sweden has no exception in this respect, but, nevertheless, decided in 1997 not to join the euro area, so there was no effort to meet criterion necessary to have a stable exchange rate. Sweden has a referendum on the European single currency on 14 September 2003, participants voting against adopting the euro, with 56.1% votes against and 41.8% votes. The decision was taken for a minimum of five years. In Denmark a referendum on joining the euro took place on 28 September 2000, yielding a rate of 53.2% against membership. Making the euro has required years of training plans and to balance the appearance of GA and eastern ethical and practical dimensions of security features. This process resulted seven notes and eight coins that were put into circulation in January 2002. As was said before, at launch, to January 1, 1999, the euro became the new official currency of 11 Member States, replacing the second stage, the old national currencies - such as the German mark and French franc. Initially, the euro was introduced as a virtual currency for making payment transactions not involving banknotes and coins, and for accounting purposes, while the old coins, considered subunits of the euro, continued to be used to make payments in cash . Strengthened the role of the shield it has played since the beginning of the financial crisis, the European single currency reaches ten years of existence with a greater credibility in the context of the

economic difficulties seem to favor a policy coordination in the euro area countries. The euro area has 329 million people in 16 European countries from January 1, after the integration of Slovakia, and some 16.5% of world wealth. With five new members in ten years, including four in 2007, the euro area continues to expand, while the euro seems to have the credibility of its creation. The euro was a wall of protection from the financial crisis, registering an increased interest from countries in the European Union (EU) were not convinced of the importance of a single currency, such as Denmark or Sweden, but also from Iceland, which even not part of the EU bloc. "In this time of crisis, protect companies in the euro exchange rate volatility, which strongly affected in previous periods of recession", said European Commission President Jose Manuel Barroso. But the euro has other advantages. Become the second global currency, the dollar, the single European currency - which are denominated in 27% of global currency reserves - is considered as important as the dollar or yen in the world and help prevent monetary crises. The euro has also increased convergence of European economies, especially after the creation of the Eurogroup, the informal forum of finance ministers from the euro area, the monthly meeting. However, the euro area has suffered from weak international representation, having their representatives in international organizations such as the IMF or the Group of Seven (G7). 3. Socio-economic impact of global crisis on the Eurozone Economy of a country, region or group of countries and the whole world, develops cyclically. This means that in certain periods of time, one country (a group of countries, etc..) Is characterized by a growing economy, followed by a limitation of extension, then a decrease, that a cessation of it. The duration and depth of each of these four phases depends on each particular case, vary over time and may change from one country to another, representing a derivative of the level of development, production structure, management capacity of central government economic (Ministry Finance, Ministry of Economy, Central Bank etc..) economic and geographic context, etc.. A regional

crisis is the result of "blending" national crisis of some neighboring countries with economies closely linked. Cyclical phenomenon has been identified and developing exposed by many economists from different countries still worth more than a century ago. Cycles are of many kinds. One "classic" last 7-11 years. The term financial crisis applies to situations in which financial institutions or assets suddenly lose a significant part of their value. The current crisis, called the subprime crisis, financial crisis is caused by a sudden drop in liquidity in global credit markets and banking systems, caused by the failure of companies that invested in subprime mortgages (high risk). Its causes be seen since the end of last century, but the peak reached in 2007 and 2008. The crisis has revealed serious shortcomings in the global financial system and regulatory framework. "The economic crisis is a cold blooded murder against people around the world, threatened to lose money the longer after he lost the only source of income, work. (Jose Saramago) Fragile economic and financial crisis, countries in Eastern Europe flock to the gates of the European single monde to find there something more monetary stability [2]. Many have asked whether a taming of the criteria for admission, the desire to expedite entry into monetary union. So far no echo. Today the global crisis has accentuated the economic gap between the euro area and neighboring countries, which have crossed many years of strong expansion. "We are in a situation where the crisis has made the euro area more attractive and more difficult accession", explained the European Commission. For adopting the single currency, candidates must meet criteria related to the deficit, interest rates, inflation and currency for them as closely as the eurozone economies. The financial crisis has deepened the deficits candidate countries, particularly in Lithuania and Latvia. It has removed also the euro area in terms of price increases. Coins of Hungary, Czech Republic and Poland, all three members of the European Union, have jumped in recent months from 10% to 35%. It is difficult to define the current market conditions being a reference against the euro - which is accepted by all euro area countries - while many observers feel Eastern countries still overvalued currencies.

In 1998, when the first "tests" for entry, nor Italy, nor Finland had one 2 years old in the monetary system (15 months for Italy and 18 for Finland). Slovenia came after 22 months. But this time Europe does not want to precipitate things. The accession of new member candidates euro area under current conditions, "is not an easy issue for anybody," it said in Brussels. Rise speeds of these new EU members has been largely funded in euros. According to rating agency Fitch, 70% of loans in Hungary are in foreign currency, although wages in Poland, Hungary and Czech Republic are paid in zlotys, forints, or crowns. Head of group finance ministers, Jean-Claude Juncker, said the growth potential of the euro area could fall below 1% this year and in 2010, from 2.2% before the recession. "There is a probability that the crisis, the eurozone suffer permanent losses in the future," said Juncker. This and Monetary Affairs Commissioner Joaquin Almunia, said that the more severe the crisis has apparently passed for the euro area, but a return to growth is likely to take place only in 2010. The euro area economy declined by 2.5% in the first three months of 2009, in quarterly terms. Also, the unemployment rate in May is likely to increase the level of 9.5% in May, affecting the most poor. The proportion of those who disagree with the positive role of the euro is highest in Slovakia (66%), Finland (61%) and Belgium (54%). The view that the euro has helped to reduce the negative effects of the crisis is shared at least in the Czech Republic (56% think so), Germany and Britain (54%). The greatest support for accelerating the process of adopting the euro is in Hungary (47%) and Romania (35%). The desire to slow down is most pronounced in Lithuania (50%) and Poland (41%). [4] Juncker added that weak growth potential will be harder for governments to cut budget deficits affected by the fiscal stimulus programs. EU has a limit of 3% of GDP in terms of budget deficit and the EC estimates that 21 states, the total of 27, will exceed this limit. 4. Conclusions Looking from the perspective of the European Union and especially its prospects Monetary Policy, we can say that this crisis

has reorganized many states thinking about adopting or not the single currency. If countries such as Britain and Denmark have rejected the idea almost from the beginning adopted the Euro, and Italy to give serious thought to this, now these countries, especially new entrants in the EU is rushing to enter the vast umbrella of Euro, more or less taking into account the consequences of this the so hasty. Today more than ever in the last half century, bankers, politicians and experts seem to watch to the fundamentals of the economy. Oil crisis, food crisis, inflation, energy problems and environmental concerns should make the economical and political decisions makers to return to the simple things. How simple can they be in the XXI century!
1. D. Miron - EU Economy, Ed Paragon, Bucharest, 2000 2. G. Silas - European monetary integration between theory and policy, Ed Horizons University, Timisoara, 1998 3. N. Sut - European Economic Integration, Economic Publishing House, Bucharest, 1999 4. *** - www.eu4journalists.eu/index.php/dossiers/ 5. *** - www.lemonde.fr 6. *** - www.newsin.com

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