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The Euro Essay

1304 words - 5 pages

The Euro

The new international currency of the European Economic union, euro became the national currency on January 1 2002. In this union where only euro is valid as currency includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Netherlands, Portugal and Spain and their national currencies will cease to exist. Before the euro formation, there existed the gold standard and the Bretton Woods system. Both were aimed at the internal and external stability. These policies collapsed when the two goals diverged.

Since the euro eliminates the exchange rate problem and focuses more on the internal stability by unifying currency, the policy target dichotomy can be resolved. Even though nothing like euro has been established before, it was formed to benefit the European economy by controlling the budget deficit, by having a more stable government, and by creating an even closer union among the people of Europe thus there are many benefits that will allow euro to exist in the long run. The formation of euro has increased the importance of internal stability such as price stability and employment.

The Europe’s move to euro must stand on a foundation of stable government policies. The stability will cause lower prices, lower interest and create more jobs and investment. The internal stability should be build from the inside and not pressured from the outside by fixed exchange rates, ”Monetary stability had to be built at home” quoted by Heinz-Peter SpaHn. By uniting Europe the “home” area has expanded. The articles in the Treaty on European Union clarifies that the budget deficit cannot exceed 3% of countries gross domestic product by establishing very clear surveillance procedures. The deficit will be considered an exception if there is a very sharp economic downturn that causes an annual fall in real GDP of at least 2%.

There are negative aspects of Euro that critics talk about such as trade barriers and different languages and the passports for the borders. The trade has been increasing throughout Europe. When we look at the given data, the volume of cross-border transactions grew. The figures show that over the first three years of the euro trade volumes increased 16 percent for Italy, 17 percent for France, 23 percent for the UK and 29 for Germany. One of the regulations says that the advisability of improving consumer services by strengthening the conditions of competition in the provision of cross-border payment services. This means that the competition in Europe is beginning to spread and increase which is what is needed for economy to grow and develop. But the survey confirms that the euro zone still charges consumers too much for cross-border transactions involving small amounts of money.

The overall intra-industry supply chains are less price sensitive and the growing use of hedging options by businesses is reducing the risk cost of international trade. This increases the price...

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