PROBLEMS IN THE EURO ZONE: DOES THE EURO ZONE COMPLY WITH THE OPTIMUM CURRENCY AREA CRITERIA?

The European Monetary Union (EMU or euro zone) is one of the few examples of a currency area in the world. In the 1960s Robert Mundell formulated the criteria for an optimum currency area and the euro zone has often been measured based on the principles of Mundell's theory of optimum currency areas. The global financial and economic crisis has highlighted the risks faced by the single currency area, if the member states react to events differently. Mundell considered the probability of asymmetric shocks as one of the downsides of the optimum currency area. This article aims to explain the characteristics of the euro zone crisis and to identify the problems that have arisen under the influence of asymmetric shocks to answer the question whether the euro zone corresponds to the optimum currency area criteria. The article particularly focuses on the newest Member State - Latvia, which joined the euro zone during the current crisis.