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What Is The Eurozone?

By Edited Nov 13, 2013 0 0

The structure of the Eurozone

The Eurozone structure can easily be compartmentalized and analyzed in isolation.

Labor market

A close analysis of the labor market in terms of employment and unemployment rates reveals a shocking historical trend. For instance the unemployment rate was high in the 1980’s and 1990’s but following the initiation of the Economic and Monetary Union (EMU) the unemployment rate went down temporarily. Immediately afterwards the unemployment rate ballooned in response to the recession. The participation rate in the labor market revealed the absence of young and old people in the job market. The labor market in Eurozone is dominated by average aged population. This coupled with low hours work per person explains why the Gross Domestic Product per capita of the region is low.

Economic policy

The Eurozone has experienced economic reforms in the goods, capital and labor market. These reforms have resulted into removal or lowering of trade barriers hence countries can compete effectively. The reforms on one hand enhance productivity and employment and on the other lowering pricing pressures. The flexibility that comes with the reforms makes countries easy to adapt and lower the impact of economic shocks.

Fiscal policies

Government expenditure and revenue are the key determinants of the Eurozone fiscal policies. It is worth noting that the Eurozone countries have their own independent fiscal policies which help monitor budget deficits and debts. Economic growth challenges, macroeconomic instability and inflationary pressures define the Eurozone. Most countries have gone down in debts and austerity measures are contemplated by countries like Greece and Spain. The austerity measures being put into play are like increasing tax rates as well as increasing interest rates. These measures according to analyst may help salvage the situation.

The Eurozone has come up with institutional arrangements that ensure fiscal policies at EU level are closely monitored and watched. Example of institutional arrangements is the no-bail-out clause.

External trade

For countries and economies to survive trade is necessary. The Eurozone has an external trading desk characterized by both imports and exports in essential commodities. The imports to the region have mainly been energy and raw materials while the exports are mainly processed goods. The lack of striking a balance between imports and exports has seen many countries go through the worst budget deficits.

Financial structure

The Eurozone has an interesting financial structure where funds are moved from the net spenders to the net borrowers. The movement fund is accomplished by a couple of ways among them direct transfers to the net borrowers through financial markets. The financial markets through financial instruments have for along period of time served then net borrowers. Indirectly through banks and other financial institutions money also changes hands. The main assets are currencies, stocks and insurance technical reserves.

Financial intermediaries

In Eurozone financial intermediaries are sub-divided into two Micro Financial Institutions (MFI’s) and Other Financial Intermediaries (OFI’s). MFI’s consists of Euro system which embodies European Central Bank (ECB) and National Commercial Banks (NCBs), credit institutions and non-credit institutions which basically trade in money market funds. It is worth noting that credit institutions are the most significant financial intermediaries in Euro area. On the other hand, OFI’s entails mutual funds, pension funds, insurance corporations, financial corporations as well as securities and derivatives. 

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