Strengths And Weaknesses Of The Euro

As of 2012, only seventeen of members of the European Union have decided to use Euros as their currency. In order for the members that adopted the Euro as their currency to successfully help their economic problems, the Eurozone members had to follow strict instructions put into place the European Union. The strict policies included strict control over inflation, government debt, and long-term interest rates (Mckee 525). The union put these strict policies into place to give the union the tools that it needed to take in order to help fix the economic crisis in each country participating in the Eurozone. Without the full cooperation of each country, it could cause the plans to fix the economic crisis within each country to fail because of the different interests by each individual country.

Whether the United Kingdom decides to join the European single currency and replace the pound with the euro will have profound economic as well as political effects on the country so is a very important decision and has considerable variations in attitudes towards the topic, although the British public opinion has consistently opposed joining the euro. The euro is currency shared by 18 of the European Union's Member States. The euro was introduced in 1999 and automatically became the new official currency of 11 States, followed by another 7 countries joining to date. However, the UK negotiated an opt-out to from the Treaty meaning they don’t have to adopt the common currency as they fit a certain criteria [1]. Joining the European single currency can have major advantages for the UK, such as diminished uncertainty of exchange rate for businesses and the decreased need to pay transaction costs of changing currencies when abroad. It can also have disadvantages such as loss of domestic monetary policy and variable rate debt in the UK.

repayments following the collapse of the Monti administration and differences with the IMF and other

This story is enlightening due to a clear overview of how a single currency with the ultimate goal of union and growth results idealistic as differences, not only regarding cultural and social backgrounds but also political ones, makes it very difficult for the Eurozone as a whole to have the same objectives and interests.

Today, the global economic crisis is centered around the struggles of the European Union to protect its very existence. At the start of its second decade of existence, the common currency form of the Euro, shared by 17 of the European Union's 27 member states, is imperiled by the threat that some of its struggling member might depart from the Eurozone. With a particular focus on Greece, which balanced the question of its status in the Eurozone over the course of its recent elections, the discussion here considers the possible consequences of a breakup of the Eurozone. By and large, the discussion will demonstrate that the consequences would be catastrophic for the global community as a whole.

After the long awaited single currency implementation known as the euro, there have been many ups and downs to this monetary system. Many have been quick to criticize while others still praise its value claiming it will soon be valued strongly against the dollar. Our paper looks into the various aspects of the euro and the progress it has made since its initiation. We begin with a brief history of the euro then move on by raising some questions concerning the effects of the euro on various economic aspects such as competition and global financial institutions. We then provide insight to the various strengths and weaknesses of the euro and the implications this currency has on various institutions such as banks.

When the Eurozone was founded on January 1, 1999, it was with the intention of further integrating and strengthening the nations of Europe, both economically and politically. Until recently, it was believed that the euro provided a stable currency with low inflation and low interest rates and encouraged sound public finance. That the use of a single currency increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade, and gives the European Union a more powerful voice in the world. That the size and strength Eurozone would better protect it from external economic shocks, and provide the EU’s citizens a tangible symbol of their European identity, of which they can be increasingly proud as the euro area expands and multiplies these benefits for its existing and future members (European Commission).

The euro was introduced on the 1st of January, 1999 to foster economic integration and growth. The current member countries of the Euro are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The Euro involves a single, fixed currency within the Eurozone area. The member states are required to adopt a common monetary policy set by the European Central Bank (the same interest rate and policy on quantitative easing). The Growth and Stability Pact was incorporated to set strict limits on government’s budget deficit, gross debt and price stability.

The criticisms of the Eurozone keeps on rising from many people living in the region, as we can see early on this year Britain has voted for the Brexit. That leaves many people surprised, as well as leaving the economic stability volatile; the euro currency has been fluctuating in such a wide magnitude. Recently, the Italian Prime Minister Matteo Renzi resigned after the failure to persuade the country to come into constitutional reformation to leave the EU. That leaves many people ambivalent whether or not euro was a mistake.

A huge complication with introducing the Euro was that it induced very low real interest rates. Low real interest rates causes money to go from savings to investment and consumption, heavily increasing public spending and borrowing. These extremely low real interest rates are due to the effect of the single Eurozone interest rate on the countries with relatively high inflation. The low real interest rates caused excessive expansion in consumption and construction. This combination in particular is very risky because it may lead to an economic bubble through a large amount of investment being poured into real estate and stock markets, and that is exactly what happened. A perfect example of this is in Ireland; their housing prices nearly quadrupled from 1995-2007. All in all these low interest rates greatly encouraged a

The European Union fails in very important and fundamental ways at being an effective and enabling political system. Even though it managed to enable trade and movement of people across its internal borders, as well as, set up a monetary policy, it has not been able to establish itself as the

“The problem is that the European capitalists are attempting to move towards union at a time when the general economic conditions are pointing in the opposite direction. If they could obtain a rate of growth of 5 or 6 percent, as they did during the period of upswing, then they could bring about monetary union without too much trouble. But with growth rates of 3-2 percent or less this impossible. All this means that a Federal European

The need to have a solitary currency for Europe has come from the following six major factors. Firstly, the Post World War II, European Union (EU) was established in the year 1957, to have a trade market that is common for all its constituent nations. This soon gave way to the need of having a joint currency among EU nations, as it was realized that individual currencies caused too much fluctuation risks and sustain exchange costs (European Central Bank, 2010). Secondly, the EU needed to have a more powerful presence in the world economy, and an established common stable front in terms of currency, was the pathway to the right direction. Thirdly, the markets of all the European countries needed to get a joint and steady platform for

Thus, the establishment of economic and monetary union and the introduction of the single currency and the ECB have become a part of an ambitious project, which, however, has never been completed due to lack of fiscal union. Also, one of the main reasons for a permanent disproportion in development is the unwillingness of Member States to transfer their own sovereign powers for creating a single supranational independent institution for the purpose of a single economic policy. In fact, the EU combines the different types of economy, which remains independent and managed by Member States. In the context of the existence of a single supranational monetary policy pursued by an independent institution - the ECB - the state, first of all, denied the so-called monetary mechanism allowing both the strengthen of the economic reforms effects, and the reducing of their imperfections. At the same time the single monetary policy is conducted without regard to differences in levels of development and in the economy structures of the euro area countries. One of the consequences of such political incoordination was the accumulation of public debt and growing fiscal deficits within the euro area, which average index has increased from 83.8 % in 2011 to 92.0% in

“It is finally sinking in that the euro is here to stay…The Eurozone is again a club with a queue – not at the exit, but at the entrance” (Van Rompuy, 2013).