EURO ZONE Euro Zone consist of 23 countries.All of them use same curency that is Euro.

Euro zone has been made on 1 january 1999.the motive behind this to be financial strong and competetive in global market.The most powerful states are France and Germany.In 2001 Greece Join the Euro Zone and amazingly become a fastest growing economy in europion union.

1 INTRODUCTION
The crisis which shocked the world that we known as euro zone crisis is not only due to the default which has happened in Greece.All the members are equally responsible And mostly their govrnance,policies makes the whole euro zone comes under this soverign debt crisis. The current crisis has exposed flaws in the working of financialmarkets; this crisis cannot be explained only by years of cheap money and growing imbalances in the world economy. Mistakes in macroeconomic policy were accompanied bygross abuses of securitization, excessive leverage, abnormally skewed incentives and a lossof moral compass, inadequate risk-assessment models and failures to check for systemic risks, a breakdown of due diligence and an almost blind belief in the self-regulating virtues of markets. Structure is key in understanding the current crisis. On the one hand, it can derail even brilliantly conceived policies; on the other hand, it can shape policies wrongly. Prior to the financial crisis the European leaders failed to recognize the extent to whichEuropean banks were involved in the origination and distribution of toxic financial products.Financial sector practices have also obscured the size and dangers of the shadowbankingsector in Europe. (Daianu,2012) 1.1 POLICY WEAKNESS The optimum currency area (OCA) theory says that the adoption of a single currency pays off when the monetary area is highly integrated economically and has the capacity to adjust quickly to asymmetrical shocks. Traditionally there are five core OCA properties namely: wage and price flexibility, trade integration, cyclical convergence, factor mobility, and fiscal federalism, which are used to assess a success of an OCA area. In the EU wage setting continues to be done, predominantly, at the national level, and quite often at the sectorial level. This mechanism reinforces the relative inflexibility of the individual countries labour markets. Within the euro-area real wages have tended to be downwardly rigid with a relatively high level of indexation. Moreover, although nominal interest rates had largely converged, there was a wide discrepancy among real interest rates of the euro zone members. Although business cycles synchronization has increased within the euro zone countries, much of it had to do with the fall in the amplitude of global business fluctuations, which benefited from low interest rates and low inflation during the past decade. But considerable structural differences remain at the euro-zone country member level. European labour mobility remains fairly limited, despite persistent differences in regional unemployment 1.2 FAILIURE IN POLICY ACTION 1.2.1 1.2.2 Stability and Growth Pact The Lisbon strategy

Both the policy are framed with different objective In one hand for (SGP)

The actual criteria that member states must respect are:

an annual budget deficit no higher than 3% of GDP (this includes the sum of all public budgets, including municipalities, regions, etc.) a national debt lower than 60% of GDP or approaching that value

Another hand the lisbon strategy

Innovation as the motor for economic change (based on the writings of Joseph Schumpeter) The "learning economy" Social and environmental renewal

Now many countries of euro zone does not follow SGP pact for Greece its horrible to see that its current account deficit is beyond the expectation of investors. It is so horrible which Brings market shock called as Minsky moment (These are moments when, according to Minsky, financiers lay waste to the economy. A Minsky moment comes
after a long period of boom, after much speculation via borrowed money; it happens when over-indebted investors are desperate to sell good assets to pay back their loans, causing huge drops in financial markets and big surges in demand for cash. Paul McCulley of PIMCO concocted it to describe the Russian financial debacle of1998 (Lahart).
Greece joined the Euro zone when it was launched in 1999. By becoming member of the Euro zone Greece's credit rating was considered the same as Europe's heavy weights such as France and Germany as they were all now part of the same union. This gave Greece access to finance that it would otherwise not be privileged to and as a result a boom in the Greek economy took place, from 2000 - 2007 Greece was the fasted growing economy in the Euro zone as capital flooded the country. Successive Greek governments went on spending spree's, creating in turn many public sector jobs, new pension plans and many other social benefits. The spending addiction included high-profile projects such as the 2004 Athens Olympics, which went well over budget. In keeping with monetary union guidelines, Greece deliberately misreported the country's official economic statistics. Greece paid Goldman Sachs hundreds of millions of dollars in fees from 2001 for arranging transactions that hid the actual level of borrowing. This enabled Greece to live beyond its means, while hiding its deficit from the EU. Greece's revision of its deficit figures in May 2010 confirmed its economic statistics had been outright lies. Holders of Greek debt questioned if Greece Would ever be able to pay off the 215 billion in government debt it really owed What ever happen in the Greece and other states of European union it effects the over all credit rating of whole as it is mention in below table

Table 01: Fitch sovereign long term default ratings of selected Euro-Zone States
Countries Fitch sovereign long term default rating Greece BBB+ Ireland AA Spain AAA France AAA Portugal AA Slovakia A+ Belgium AA+ Italy AANetherland AAA Austria AAA Cyprus AAGermany AAA Source ; The Fitch Credit Rating Agency , 2009

The main defect in the policy 1The

regulation and supervision of financial markets is a huge policy issue in the EMU, in the EU in general. The distribution of responsibilities between home and host country and the inexistence of detailed burden-sharing arrangements in the event of a crisis has been a major handicap for the single market under conditions of deep financial integration12.Under current arrangements, responsibility for the stability of financial institutions belongs to the supervisor of the country where they are headquartered whereas responsibility for the stability of financial systems belongs to the supervisor of the host country. This crisis reinforces the idea that a common rulebook, more integrated supervision, and a common framework for crisis resolution are all needed to match the degree of financial integration. Onthe other hand, the burden-sharing issue prompts national governments and supervisors tothink more along national lines, in view of their accountability toward national taxpayers 2 There was a conflict between Fiscal policy and the Monetary policy. The Fiscal Policy of the countries was governed by their particular states on the other hand the Monetary policy was governed by the EMU. Therefore, there was a conflict as to under whose governance both the policies would lie.

3 There was also a contradiction between the Financial System and the Financial Institution. The Financial System was governed by the European Union whereas the Financial Institution was under the control of the particular states. This led to a conflict as to whose governance would be in effect for both the systems.