The Euro

Clementine Keane & Ellen Doyle

Content

Introduction Single Currency Video Three stages of EMU Six Reasons for Implementation Disadvantage

Introduction

We are going to discuss in detail six reasons for the implementation of Single Currency. We will also discuss one disadvantage of this implementation.

Single Currency

The single currency was created in 1999 when the exchange rates of the currencies of the participating countries were locked into the euro

The euro banknotes and coins were introduced in 2002 in 12 countries

Video

http://www.youtube.com/watch?v=HoLNdBq9f5M

Three Stages of the EMU(Economic & Monetary

Union

Stage One- 1st July 1990

Abolition of all restrictions on the movement of all capital

Increased co-operation between central banks

Free use of the ECU (European Currency Unit, forerunner of the euro)

Improvement of economic convergence

Stage Two-1st Jan 1994

Establishment of the European Monetary Institute (EMI)

Ban on the granting of central bank credit Increased co-ordination of monetary

policies Process leading to the independence of

the national central banks, to be completed at the latest by the date of establishment of the European System of Central Banks

Stage Three-1st Jan 1999

Irrevocable fixing of conversion rates, Introduction of the euro

Conduct of the single monetary policy by the European System of Central Banks

Entry into effect of the intra-EU exchange rate mechanism

In January 2002 was the introduction of the euro banknotes and coins

Reasons for Implementation

Price transparency  Being able to easily tell if a

price in one country is better than the price in another is also a big benefit both for consumers and businesses

With price equalization across borders, businesses have to be more competitive

Pricing still varies, but consumers can more easily spot a good deal or a bad one

Increase Trade

Increased trade across borders  The price transparency, elimination of

exchange-rate fluctuations, and the elimination of exchange-transaction costs, all contribute to an increase in trade across borders of all the Euroland countries.

Increased cross-border employment  Business can be conducted across

borders more easily People are more easily employable

across borders With single currency it is less frowned

upon for people to cross into the next country to work, because their salary is paid in the same currency they use in their own country

Exchange rate Stability

Joining a fixed exchange rate may cause inflationary expectations to be lower

Often countries join a semi-fixed exchange rate, where the currency can fluctuate within a small target level, however the ECB has control over it

The euro has eliminated the damaging effects of intra-European exchange-rate tensions, which accompanied external shocks in the past and were often costly in terms of growth and employment.

Prudent Macroeconomics

The European Central Bank (ECB),introduction of the euro also helps to lower(and control) inflation among the EUcountries: Low interest rates Low inflation regime encouraging higher

and better quality investment Prudent government spending & low

government borrowing

Expanding markets for business 

Business can expand more easily into neighbouring countries. Rather than having to set up separate accounting systems and banks

Transactions in countries other than their native one, the euro makes it simple to operate from a single central accounting office and use a single bank

Structural reform for European economies 

The participation requirements of the euro pushed many EU member states who wanted to participate to get their economies in shape and improve their economic growth

With the requirements of the Stability and Growth Pact, they will also have to maintain that control in the future, or face fines

Disadvantage of a Single Currency

Budgetary & Fiscal Policy

There is no clear budgetary and Fiscal Policy in the Eurozone, despite a unified monetary policy.

As a member of the Eurozone, the Irish government has to comply with strict EU rules concerning government spending and taxation

Biggest Trading Partners not in Eurozone

USA and UK As the USA and the UK are not in

Eurozone it makes trading uncompetitive

The euro increases in value against the dollar and pound sterling this makes Irish exports to the UK and USA more expensive

Conclusion

In conclusion the six implementations of a single currency such as the euro helps increase trade across boarders, expands markets for business and helps lower the interest rates within the EU countries.

Improves employment across boarders as the currency has the same value in all countries

References http://ec.europa.eu/economy_finance/p

ublications/publication7309_en.pdf http://www.youtube.com/watch?v=HoL

NdBq9f5M http://www.oxforddictionaries.com/defi

nition/english/single-currency

http://www.ecb.europa.eu/ecb/history/emu/html/index.en.html

https://www.ecb.europa.eu/ecb/educational/facts/euint/html/ei_004.en.html

http://europa.eu/legislation_summaries/economic_and_monetary_affairs/introducing_euro_practical_aspects/l25007_en.htm