ABSTRACT
Although several developed countries have experienced financial crisis since 2008, a special reference has been made to the eurozone countries. This chapter investigates whether the introduction of the euro is the main cause of the current account problems in the eurozone. This is a worthy objective since many scholars assume a direct link between the introduction of euro and the current account problems in the eurozone without providing convincing evidence. The chapter covers the theoretical and empirical literature and based on the four criteria established investigates whether there is current account crisis specific to the eurozone countries. An important problem with the arguments is that whether the focus is on 'over-prudence' or 'under-prudence', the deviation in policies needs to be explained in the context of historical developments. Another popular debate considers the role of the Economic and Monetary Union (EMU) as an Optimal Currency Area and questions whether it is prone to asymmetric shocks.
