The document discusses the debt crisis facing peripheral Eurozone countries like Greece, Ireland, Portugal, and Spain. While each country had different economic issues before the crisis, all are now dealing with large public debt burdens. The document analyzes whether the Eurozone constitutes an optimal currency area and concludes it does not fully meet the criteria. Monetary policy favored Germany over converging countries, exacerbating internal economic imbalances. For debt levels to stabilize, peripheral countries will need better fiscal discipline and time, as sudden austerity could be counterproductive.

1. The debt crisis in the peripheral countries of the Euro area

5. Contents - 5 1. The convergence process in the Euro area and its consequences on monetary policy 2. The policy mix in the Euro area since 2000 3. How coping with the debt crisis?

23. 3 – What’s next? - 23 Is there any exit strategy from the Euro area? NO . There is not a symmetry between entering and leaving the EMU: technically, what would be the value of the private or the public debt for the country leaving the EMU? If there is a strong depreciation of the new currency (50% or more), the increase of the external debt will not be sustainable. . Which value for the new currency? In the short run, a depreciation of the currency increases the competitiveness, but if it is followed by a strong rise in the inflation rate, interest rates would be pushed up: as a consequence GDP might be hit negatively and competitiveness would deteriorate. . Consequences on remaining countries are not clear. It might lead to an increase in interest rates in EMU Member States and to a lower intra-Euro area demand.