The European Union, Greece, And Spain

Breitfelder, M. (1998). The Euro Currency Age: Challenges and Opportunities for U.S. Businesses. Business America, 119 (7), 33.

Greece is a thriving country, but if it wasn’t for its beautiful islands, seas, and mountains, Greece would not be as strong of a country today. All these factors have helped Greece grow as a country. Throughout history, various mountains such as Mount Olympus and seas such as the Mediterranean have played an important role in the development of Greece history and culture.

The Euro was approved for equity and debt trading, bank transactions, business-to-business and payments by cheque. The euro transformed Europe (Warner, 1998) from “a jigsaw of costly protected markets into a vigorously competitive economic bloc, thereby enhancing international trade in the area”.

With the impending Presidential election consuming the American news cycle, major media outlets and the general public alike have neglected a growing crisis within one of the world's most important centers of commerce and culture. Despite the domestic rancor over stimulus packages, runaway debt and rampant unemployment which has inspired fierce political debate here in America, the fact remains that many European countries have borne the brunt of the global recession currently decimating national economies. The so called Euro Zone, a consortium of 17 neighboring nations which belong to the European Union (EU) and have adopted the Euro as their common currency, has experienced unimaginable financial disarray during the last decade. In the modern age of globalized economic structures, the increasing instability emanating from European markets is now threatening to spread to Asia, America and around the world.

The choice for the European Union to adopt a single currency for the European Community was first introduced in the 1970 Werner Report. This idea was then developed into the European Monetary System (EMS). The Maastricht Treaty (1992) made EMU part of EU law and set out a plan for a single currency to be established by 1999 . It was thought that a common currency would increase efficiency in the EU, thereby raising the standard of living and develop a sense of European Identity. It was agreed that in order to adopt the single currency, EU members had to meet certain conditions. The conditions include to keep their exchange rates within bands called the Exchange Rate Mechanism (ERM), have low interest rates and low inflation and keep government spending and borrowing under control. In 1998, 11 member states had agreed to fix their exchange rates where the European Central Bank would take over and have the power to change their interest rates. The single currency is now, in 2016, is shared by 19 member states.

On the first of January 2002, history 's largest currency changeover occurred. The changeover was a challenge of unseen proportions involving banking sectors, retailing companies and the overall public of the Eurozone. So how did this politically sound concept result in what can only be described as widespread economic turmoil? Of the member states, Portugal, Ireland, Italy, Greece, and Spain (PIIGS), have been the most condemned for their actions in the run-up to the crisis. Five years on, there are continued discussions of a possible exit of Greece from the Eurozone or 'Grexit, ' bringing into question the true stability of a single currency

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.

The European Union was born after the disastrous effects of two world wars with the idea to merge Europeans states into a single unity. Along with the purpose to bring economic and political partnership to bring peace and prosperity on the European continent. It now includes 28 European states as of this point. From this union, 17 members sought closer economic ties as well as monetary cohesiveness resulting in the formation of the Euro-Zone within the European Union. The Euro-Zone formed a single currency known as the euro that circulated among the 17 members. In addition, the citizens within the Euro-Zone may travel freely if they wish such as for going to work or simply on vacation without needing to be bogged down with passports or visas within the members of the Euro-Zone. Furthermore, this experiment has turned the Euro-Zone into an economic powerhouse for 60 years along with producing the world’s second highest GDP within the world economy; However, until recently this had not been the case. The Euro-Zone has a high probability of collapsing because of the debt crisis, the rise in nationalism, and finally Germany’s national interest that will lead ultimately to the Euro-Zones downfall.

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 European Union was formally established in 1992 by signing the Maastricht treaty and became fully operational in 1993. In 1995, Sweden, Austria and Finland joined the EU. In 2002, Euro currency replaced the national currency in 12 of the union member nations. It is now the second largest reserve currency in the world. In 2004, the EU had its largest expansion as 10 nations joined the union at

A common currency also minimizes uncertainty about exchange rate fluctuations among member nations. However, as is often the case in economics, there exist tradeoffs that policymakers must recognize. The most notable is that by joining the Eurozone, a nation is relinquishing its abilities to operate their own central bank and easily enact desired monetary policy. Obstfeld warned in 1998 that “nationally asymmetric real shocks” could make transitioning to the Euro difficult for nations (4). Maurer notes that today the EMU has resulted in convergence of nominal interest rates but divergence of real interest rates due to differences in business cycles (5). If business cycles among Eurozone members were to converge however, it might make sense to have a unified central bank and monetary policy. Massmann and Mitchell report that depending on how one measures this convergence, one can get drastically different results (16). These results yield a weak argument that the cycles have converged and suggest centralized monetary policy might be inappropriate at times for some members.

Once in a lifetime a family might make one large purchase or transaction across a European border such as buying a holiday home or a piece of furniture. A single currency would help that transaction pass smoothly. Likewise, “businesses would no longer have to pay hedging costs which they do today in order to insure themselves against the threat of currency fluctuations. Businesses, involved in commercial transactions in different member states, would no longer have to face administrative costs of accounting for the changes of currencies, plus the time involved. It is estimated that the currency cost of exports to small companies is 10 times the cost to the multi-nationals, who offset sales against purchases and can command the best rates”[1]. A single currency in the EU should overall result in lower interest rates as all member European states would be locking into German monetary credibility. The stability pact (the main points of which were agreed at the Dublin summit of European heads of state or government in December 1996) will force EU countries into a system of fiscal responsibility which will enhance the Euro's international credibility. This should lead to more investment, more jobs and lower mortgages.

As the most principle stance in EU monetary architectures, the EMU has experienced an incredible institutional transformation under the tremendous pressures not matter from the EU or national levels. In Dyson’s (2000) observation, the EMU’s actual effects on European states began from 1 January 1999. However, the process for putting its conditions in place can be traced to the European Monetary System (EMS) in 1979, since when the specific

In 1957 the European Economic Community took birth. In 1979 was the first experiment with a currency union by linking European currencies which led to the European monetary system, the precursor of the euro.

The Greek exit from the European Union “Grexit” was something that was coined in 2012, due the numerous problems they was facing. The problems emerged in the late 90s. When Greece joined the euro it meant that barriers of trade were reduced between member states. However. Greece had higher labour costs relative to other EU countries and this meant that Greece was not competitive in the market. During the early 2000s Greece saw its debt burden continue to grow due to a current account deficit (i.e. demand was higher than the absorption of GDP). Greece debt was large because the country was borrowing to finance its budget deficit.