European Union, Theories And Analysis

1233 words - 5 pages

As a whole, the EU seems to be doing quite well -- but analysis of each member state is somewhat different (Letiche, 2002). the EU region and has also become less dependent on external demand and more dependent on the Euro-area domestic economy (Letiche, 2002). in addition, this type of regionalism has helped to maintain peace, as well as maintained reasonable economic growth rates as well as stronger monetary stability (Letiche, 2002).
this is not to say however, that all member states have suffered economically because of the EU. According to experts, the five poorest member states of the EU did have faster economic growth (Pattichis, 2001).
Another theory, particularly important to trade, is that countries joining a monetary union will face certain costs because they grow at different rates, particularly when it comes to fiscal policy (Pattichis, 2001). One example used by writer Charalambos Pattichis, will quotes from economist De Grauwe involves a monetary union between Greece and Italy (Pattichis, 2001). If one would suppose Greece’s gross domestic product (GDP) is growing at 10 percent per year, while Italy's GDP is growing at 5 percent per year this would mean that Grecian imports from Italy would grow at 10 percent per year; while Italy's imports from Greece would grow at 5 percent a year (Pattichis, 2001). According to Pattichis and De Grauwe, this leads to a balance of trade problem for Greece; as Greece's imports are growing faster than that exports (Pattichis, 2001; see also De Grauwe, 1997). In order to avoid a chronic trade deficit within its country, Greece would then have to reduce the price of its exports to Italy in order to become more competitive (Pattichis, 2001; see also De Grauwe, 1997). Greece's government can do this through a variety of methods including currency devaluation or deflationary practices to reduce domestic inflation (Pattichis, 2001; see also De Grauwe, 1997). But as mentioned before, a one-currency economic theory makes devaluation very difficult. But Greece cannot be value its currency, especially because the currency is the Euro, which is tied to a single monetary policy (Pattichis, 2001; see also De Grauwe, 1997).
This means than that Greece will have to follow deflationary policies, which means an adverse impact on this country's economic growth (Pattichis, 2001; see also De Grauwe, 1997). And adverse impact on Greece could lead to potential unemployment, deflation and even the possibility of a minor recession.
when it comes to the Euro however it seems as though a single monetary policy does not fit all member states of the EU (Letiche, 2002). this is because different monetary policies and different governments run the member states. Germany, for example, has rained in its inflation by an extraordinarily strict monetary policy; meaning that this country's adoption to the Euro has been somewhat troubled. For any kind of monetary union to be viable, there should be no country-specific...

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