This website uses cookies to ensure you have the best experience. Learn more

The Impact Of European Monetary Union

2107 words - 8 pages

I. Introduction
According to Lane (2006), the European Monetary Union (EMU) began on the year 1999. Following his line of analysis and reasoning, this paper shall seek to analyze the purported impacts of the said action in the light of their inflation rates and the proportion of their portfolio holdings allocated to the other members of the Euro-zone. Furthermore, the author of this paper shall look qualitatively in the current Asian context to examine the relevance of a monetary union in the continent. Further, this study is limited to the following European countries:
1. Belgium
2. Germany
3. Ireland
4. Greece
5. Spain
6. France
7. Italy
8. Luxembourg
9. Netherlands
10. Austria
11. Portugal
12. Finland

II. The Impact of the Maastricht Treaty to Inflation Rates (2008- 2013)

According to Lane, the Maastricht Treaty of 1992 was adopted to ensure a sufficient degree of monetary convergence among the members of the EMU (2006). According to Eurostat, the Maastricht Treaty is defined as follows:
“The convergence criteria, sometimes also called Maastricht criteria, are conditions that Member States of the European Union must fulfil to join in economic and monetary union and to use the euro as official currency” (
The said criteria required the countries who want to use Euro as their official currency to meet the following criteria, among others (Lane, 2006):
1. Have an inflation rate no higher than 1. 5 percentage points than the three best performing members states a year before the inspection, and;
2. To limit their budget deficit to no more than 3% of their GDP, and to accumulate public debt not greater than the 60% of their GDP.

With that, the inflation differentials among the European nations decreased substantially (Lane, 2006). However, after this initial trend of reduction of inflation differentials, it can be observed in the Table 1 above that the inflation differentials have been relatively wide, as evidenced by Table 3 below.

To explain this phenomenon, Lane (2006) concluded that changes in bilateral real exchange rates can only take place through the differentials in inflation rates since by definition, nominal exchange rates are fixed. The innate differences of the countries involved in terms of the different factors of productions will lead into variations of productivity growth (Lane, 2006). Additionally, Honohan and Lane (2003) stated that such differentials are also needed because the countries begin with different price levels to converge towards a singular price level in the short run.

The large and persistent inflation rates differential, coupled with a common and fixed nominal interest rate among the member- countries translate into differences of real interest rates among the nations in question. Thus, countries with relatively higher medium term inflation enjoy lower real interest rates, stimulating demand. Since countries with...

Find Another Essay On The Impact of European Monetary Union

European Economic and Monetary Union Essay

3924 words - 16 pages European Economic and Monetary Union The Economic and Monetary Union (EMU) is a single currency area within the European Union in which people, goods, services and capital move without restriction (Europa Quest (1), 2001). Imperative to the success of the EMU is the implementation of a single European currency, the Euro, and the application of specific macro-economic policies by the EMU member states (Harris, 1999: 78). Moreover, it is the

The Economic Impact of Integration into the European Union

548 words - 3 pages trade, free movement of goods, services and capital and thus improves economy.To summarise, integration into the European Union will have a great impact on the country as a whole and on its economy in particular. It will guarantee financial support from the EU budget, stimulate the development of small and medium business, and facilitate trade in the framework of the Common Market. All in all, Lithuanian economy will benefit from the membership of the European Union.

Is the European Monetary Union a disaster? ? Discuss

3423 words - 14 pages which the term ‘disaster’ is used in relation to this question. The Oxford Dictionary defines the term ‘disaster’ as a ‘complete failure’ . In accordance to this definition one would expect the European Monetary Union to have an utter negative impact on the Euro countries, this could include a weak currency and business activity, a high inflation rate, a refusal of acceptance of the new currency from the citizens and a counter effect on the aim

European Monetary Union and United Kingdom

1120 words - 4 pages On January 1, 1999, eleven (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxumbourg, the Netherlands, Portugal, and Spain) out of the fifteen European countries that make up the European Union(EU) formed the Economic and Monetary Union(EMU) and began using a common currency, the euro. Greece joined as of January 1, 2001. The remaining three countries, Denmark, Sweden, and the United Kingdom have yet to join the EMU either because

Impact of Free Movement of People and Service in the European Union on Tourist

2850 words - 11 pages . (european law n.d.). With this assignment, I am trying to find and tell what is the impact of free movement of people and service in European union especially in tourism industry. Objectives: • The economic importance of tourism for growth and employment in the union • The need to coordinate community policy on tourism with those in the field of the environment, and protection of Europe’s culture, historical and natural heritage

The European Monetary Union (EMU) - The Euro as a Single Currency

1720 words - 7 pages The European Monetary Union (EMU) - The Euro as a Single Currency Liberalizing trade is nothing new to the world, but we have never witnessed such a vast economic integration between sovereign countries like the integration carried out in the European Union. Customs duties between European countries started to come down steadily in the early 1950s and were abolished in 1968 with the introduction of a customs union and the implementation of the

The Pros and Cons of EMU - European Monetary Union. A concise summary (3000 words) of the main pros and cons of EMU and the Euro - covering economics, social issues, national soviergnty, etc

3421 words - 14 pages advent of the Breton Woods system in the USA promised increased stability through the use of a controlled mechanism of exchange rates. And, by 1969, the EU was beginning to target full monetary union, and this was the centre of debate at the Hague Summit. Progress was very slow however, and it wasn't until 1979 that Chancellor Schmidt of Germany, despite the advice of his own central bank, decided to implement the European Monetary System (EMS

Trade protection in agriculture by European Union and the United States results in gains for some and loss for others. Evaluate the impact of US Farm Policy or EU Common Agriculture Policy on...

2328 words - 9 pages Question 2Trade protection in agriculture by European Union and the United States results in gains for some and loss for others. Evaluate the impact of US Farm Policy or EU Common Agriculture Policy on developing countries.The European Union (EU) is the agricultural leader among developed countries in international trade. It is well-known as a world's major food exporter. In 2010, for example, its agricultural exports, mainly processed foods

Enlargement Of The European Union

2723 words - 11 pages The intention of this paper is to identify the advantages and disadvantages for both Central and Eastern European countries (CEECs) and the European Union, when the CEECs eventually join the EU. This will be done by first introducing the subject through a brief background concerning past enlargements of the Union, and will continue by outlining the countries that have been accepted as candidates. Moving on, the various criteria for accession

The European Monetary System

2077 words - 9 pages The European Economic Community (EC) was established by the Trety of Rome in 1957 with the intent of reaching full economic, monetary, and political union among its member countries. The primary goal of this European Community was to operate as a single market. In the beggining the European Community was consited of France, Germany, Italy, Belgium, Netherland and Luxembourg. Those countries were the first, because they had open economies

The Success of the European Union

1715 words - 7 pages The European Union can be traced back to the 1940’s when British wartime Prime Minister Winston Churchill envisaged a United States of Europe. However, Churchill had no idea how powerful an institution it would become by the late 20th century. The formation of the EU came just over a decade after the Second World War, 1957. For the EU’s originators the EU was a way of reducing national hostility, resentment and competition, which had driven the

Similar Essays

The European Monetary Union Essay

602 words - 2 pages The European Monetary Union The European Monetary Union (EMU) serves as an economic necessity, a complement to the European single market, which is the free movement of people, goods, services, and capital within the European Union (EU). The Euro, a single currency created under ideals of the Maastricht Treaty, will strengthen European unity and constitute as a factor for stability, peace, and prosperity for all member states as well as

The History Of The European Monetary Union

3624 words - 14 pages )1. The development of the European Monetary UnionIn 1998 the European Exchange Rate Mechanism (ERM) was introduced as part of the EMS in order to reduce exchange rate variability and to achieve monetary stability in Europe in preparation for the European Monetary Union and for the introduction of the Euro. In 1999 ERM II replaced ERM. ERM II is an exchange rate mechanism for EU countries which are currently not taking part in the monetary union

Sustaining The European Monetary Union Essay

2806 words - 12 pages , and Spain. Many of these countries have become dependent on financial assistance after adopting the Euro, leading to the popular belief that the European monetary union (EMU) is destined to fail.2 Furthermore, debt and illiquidity have crippled the Eurozone with no relief in sight. Despite these problems, the European monetary union can be conserved and improved to maintain stability and establish an evolving model for countries around the world

European Monetary Union Essay

2802 words - 11 pages . Since there is one currency, it should be an objective for the Commis-sion to introduce a single VAT-rate as well.3 Does the monetary Union make sense, in your view?What are the implications for members of the Euro-pean Union, with regard to diverse business cycles, growth rates, unemployment rage, labour policies and social values?January 1st, 1999 eleven members of the European Union adopted the currency Euro and at the same time the European