1st homework
The Euro – Advantages and Disadvantages
The Euro was introduced on New Years Day 1999 as an electronic trading currency, on January 1 2002 the € came into being a actual currency, freely usable in all cash transactions throughout the Euro zone. For individuals the effect was that they can use the Euro as a common currency throughout the Euro zone.
As a concept creating a Single European Currency, the € is not new, since the founding of the EU, Europe has been working to towards this end, i.e. the €. At present Britain, Denmark and Sweden are the only EU member states that have no intention to join the Euro-area.
As part of continuing efforts to promote prosperity within all the regions of European Union, the Euro is part of efforts by EU member states to implement policies that will encourage the creation of a Single European Market throughout the European Union. The implementation of the Euro further assists in the removal of the current trade barriers that divide EU economies; this is especially the case in the labour, finance and movement of goods in the markets of Europe.
There appear to be many groups that are against the Euro within and out of the Euro-area. The case they make against the Euro is thus:
1. The impact of the Euro could be a reduced market share for local businesses due to greater competition from elsewhere.
2.
Increased potential for price wars, especially as large firms enter local markets, previously served by smaller companies.
3. European consumers did fear that they would be cheated when the new notes and coins are introduced – price changes were onbvious!
4.The biggest criticism is not one of economics, but loss of political control of monetary policy and the fear of a heavier tax burden, because member states might find this the only way they can manage rising inflation (especially in the non Euro countries Great Britain, Sweden and Demark).
The Advantages of the Euro are manly in the economical sense:
1. Both consumers and firms would are able to make significant savings in the cost of transactions within the Euro-zone, leading to the development of Europe wide markets for goods and services as a result of not having to convert currencies.
This is already benefiting many poor regions of Europe.
2. Firms within the Euro zone are already finding it easier and cheaper to raise money to invest, enabling businesses to improve their competitiveness on the world markets.
3. The introduction of the € was already demonstrating savings for business in reducing the cost of transactions between member Euro-zone states. The € enables cash received from several different countries to be lumped together instantly and without conversion and deposited in the highest interest earning country.
4. Clearer and better information on input costs and competitors prices enable improved opportunities for long term planning and strategy formulation, as there will be less uncertainty concerning prospective returns on foreign EU operations.
5. Euro zone economies are as part of a massive market are not expected to fluctuate as dramatically as in the past from boom to bust. This added stability is expected to reduce inflationary pressure and stimulate the economy of Europe.
Unfortunately there is no clear balance of advantages and disadvantages of the Euro; it appears to be more a question of your own personal economic and political preferences, such as how governments approach managing their monetary policy.
For governments the question of joining the Euro is a trade off on having higher unemployment and low inflation or lower unemployment with higher inflation; while some governments see price stability as their objective. But I personally think in the long term there will be no way around a proper, ALL European currency – in sense of economy and politics!
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