Abstract

Following the 2008 global financial crisis, the European Debt Crisis has affected the world economy more than any other event. The member states of the European Monetary Union have deviated from the Maastricht Convergence Criteria (MCC) and this has led to the European Debt Crisis. We have used the 2000 Q1–2011 Q4 data and multivariate time series and panel data analysis for determining the relationship among the variables that establish the MCC comprising inflation, burden of net public debt, interest rate, budget deficit and exchange rate. The vector autoregression model/vector error correction model results have showed that there is an interaction between the variables. However, the panel cointegration results have confirmed increases in budget deficits and interest rates will increase the burden of net public debt and inflation will decrease it.

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