The European Debt Crises And European Monetary Union With Its Reform

The birth of European Monetary Union (EMU) is not in conformity with the principle of Optimal Currency Areas. After several reverses, EMU has grown gradually. However, being congenitally deficient in system and acquired defects of assistance mechanism inevitably result in the European debt crisis. Since the occurrence of Greek sovereign debt crisis, the European debt crisis has spread on large scale. EMU has a system of unified monetary policy and separated fiscal policy, which is a paradox. The asymmetry leads to inconsistent goals, the imbalance of economic development, the lack of credit subject and the fatigue to cope with the asymmetric shocks. These endogenous factors with other causes such as the social problems of member states and the impact of global financial crises result in the European debt crisis jointly. The member states of Eurozone compromises and reaches a unanimous assistance package. EMU need a profound and lasting reform of mechanism, which means a unified fiscal policy should be built to cooperate with the unified monetary policy. To some extent, financial integration is the only choice. However, it will be a long way and much remains to be done.By analyzing the theme, I try to find effective countermeasures. Through short, medium and long-term structural reform, I want to seek out a solution for the European sovereign debt crisis, and even being the example for other emerging economies in the worldwide.This paper is divided into six parts. The first part is an introduction, which induces the research of domestic and foreign scholars on the European debt crisis. The second part sorts out the background of the birth of the European Monetary Union with the theory of Optimum Currency Area, as well as to analyze some important and symbol treaties in European monetary integration process, and the operational framework of the euro. The third part summarizes the characteristics of the European Monetary Union, including the monetary policy manipulated by the European Central Bank, and the fiscal policy decentralized by the member states, and the paradox of the EU fiscal policy and monetary policy. The asymmetry of monetary and fiscal policy has resulted in target inconsistencies among countries, the imbalance of economic development, the lack of credit subject, and being swamped with asymmetric shocks. These defects become the endogenous factors of debt crisis. The fourth part discusses the results of the weaknesses of EMU with data and diagram briefly, and outlines the major countries’ attitude and the short-term measures to deal with crisis. The fifth part summarizes the reform of the EU; integration of fiscal policy is the only way or not.The last part is conclusion, and reconsidering European debt crisis. European monetary integration is an innovative practice; there is no molding example for reference. To achieve the goal of financial integration, there remains much to be done.