How the Euro restricts the options in the current economics climate

Interest Rates- With their own national currencies, countries could adjust interest rates to encourage investments and large consumer purchases. The euro makes interest-rate adjustments by individual countries impossible, so this form of recovery is lost. Interest rates for all of the EU countries are controlled by the European Central Bank.

Currency Devaluation- If countries weren’t part of the Euro they would be able to devalue their currencies in an economic downturn by adjusting their exchange rate. This devaluation would encourage foreign purchases of their goods, which would then help increase growth and improve balance of payments as there would be more exports. Since there is no longer an individual national currency, this method of economic recovery is also lost.

Government Spending- A third way they could’ve adjusted to the economic crisis was through adjustments in government spending, such as unemployment and social welfare programs. In times of economic difficulty, when unemployment increases and more people need unemployment benefits plus other welfare funding, the government's spending increases to make these payments. This puts money back into the economy and encourages spending, which helps bring the country out of its recession. However because of the Stability and Growth Pact, governments are restricted to keeping their budget deficits within the requirements of the pact. This limits their freedom in spending during economically difficult times, and limits their effectiveness in pulling the country out of a recession.