“One Currency for Europe: EURO”
“What paradoxic results that in a sense, the common currency issue is rated as the most difficult topic in politic and economy, and on other hand, the citizens, when they are questioned about the topic, always ask for a common currency, and later for the suppression of frontiers.”
Speech made a the European Parliament
in April 13, 1989.
Being the globalization a very important issue nowadays; economic coalition such as the “EURO” for the European Union is a very interesting matter to treat and know about it.
Even tough we live in a different continent, it is necessary to have knowledge about international economy and the latest movements that are taking place and how do entire countries join to move forward and develop through the years for the well being of their citizens. In this essay I will expose what is EURO, pros and cons and why I consider that it is a great opportunity for the European continent to develop for good.
The European Union is a concrete example of the will of living and working together. Through more than four decades, the member states have learned the pros and cons of the process of integrating Europe. Since the creation of the European Community of Steal and Copper in 1952, the member states of the EU have been adding new European structures to their economies, commerce and politics. European citizens have participated in the unification through the process of free movement in Europe, and in the possibility of choosing between a wider number of services, thanks to the prosperity that has extended throughout Europe. Although integration preserves the great diversity of culture, language and traditions of all the European countries. The new structures built I common d not intend to destroy the old ones.
Far away from the frontiers of the Continent, we can see the Union as force of stability in Europe and in the world.
Actually counting with 15 member states, which are: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Ireland, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom, the European Union is developing day by day.
The European Union was instituted by the Maastricht Treaty, effective on 1 November 1993. The European Union is a legal, political and economic entity. It is supported by three pillars: the European Community, Common, Foreign and Security policy (CFSP) and Internal Affairs and Justice.
The European Community, developed in two directions: first, toward an Economic and Monetary Union and, secondly, toward a Community with effective and democratic institutions.
The Treaty is best known for its economic chapter, which lays down the implementation conditions of the Economic and Monetary Union (EMU). In line with the first plan for an economic union adopted in 1969, the Treaty provided for economic integration as well as monetary integration. Economic convergence criteria were set in order to permit smooth changeover to the single currency, the unquestionable symbol of the EMU.
The convergence criteria were as follows:
- price stability (a maximum inflation rate of 1.5% above the rate of the three Member States with the lowest inflation);
- public finance:
- a public deficit of less than 3% of GDP;
- a public debt of less than 60% of GDP;
- exchange rate stability within the EMS fluctuation band for at least two years;
- medium and long-term interest rates no more than 2% above the interest rates of the 3 Member States with the lowest inflation.
On 1992, the Maastricht Treaty presented five goals, one of them refered to a common European currency for late 1999. The agreement about the Economic and Monetary Union was ambitious. It establishes the structure, objectives and time to achieve a high estate of economic convergence between all member states, and the creation of a common currency, the ECU (European Currency Unit).
After years of planning the introduction of the introduction of the single European currency, the “Euro” enter into force.
On January 1, 1999, eleven (soon to be 12, with the introduction of Greece in the “euro-zone”) of the 15 member states of the European Union, including Austria, Belgium, Finland, France , Germany, Ireland, Italy, Luxembourg, Netherlands, Spain and Portugal replaced their national currencies for the Euro.
As euro became the official currency in the eleven participating countries, the definition and execution of the single monetary policy in euro commences. Foreign exchange operations are beginning to be carried out in euro. New public debt is issued in euro; old public debt will be translated into euro. Stocks and bonds will be quoted in euro on all stock exchanges in the member area. National currencies will simply be denominations of the euro, and continue to be used as a matter of convenience only until 2002.
Bills and coins of the national currencies will remain in circulation as subdenominations of the euro until January 1, 2002, when they will be exchanged against new euro coins and bills. However, all inter-bank commerce and stock exchange trade is now denominated in the official currency.
As mentioned before, Greece is scheduled to become the twelfth member of the euro group.
January 1, 2002 is known as of what will be the “E-Day” at it is going to be the day when circulation of euro banknotes and coins would be started. "E-day" is the same across EMU member countries. National currencies will be completely replaced by the euro in within six months after the introduction of euro notes and coins.
It is also planned that on July 1, 2002 the legal tender status of national banknotes and coins will be canceled. (Local legislation can modify the length of the period when both sets of notes and coins are in circulation, but the process must be completed by July 1.)
There are a number of arguments that are important to take into account that are involved by the introduction of the euro.
Personally, the EURO is an important and great idea that is taking place as a result of globalization, but for the success or failure of the single European currency there are many points to take into account.
In concrete we have to focus on one of the most important points :Do the gains from reduced transaction costs, the disappearance of exchange rate instability, and greater price transparency outweight the losses from the cost of introducing the new currency and possible macroeconomic adjustment costs?
By a deep investigation , I've reached to several arguments that are important to consider to be for the introduction of the EURO, even though there are some that may not be positive.
A European currency will strengthen European identity.
One of the most important issues is the transaction costs; having to deal with one currency will reduce the cost of converting one currency into another. This will directly benefit businesses as well as tourists. On the other hand, consumers and businesses will have to convert their bills and coins into new ones, and convert all prices and wages into the new currency. This will involve some costs as banks and businesses need to update computer software for accounting purposes, update price lists, and so on, but so far this is convenient for them.
Also, eliminating exchange rates between European countries eliminates the risks of unforeseen exchange rate revaluations or devaluations.
In matter of general interests, the direct comparability of prices and wages will increase competition across Europe, leading to lower prices for consumers and improved investment opportunities for businesses.
The new Euro will be the among the strongest currencies in the world, along with the US Dollar and the Japanese Yen. It will soon become the 2nd-most important reserve currency after the US Dollar. The large Euro zone will integrate the national financial markets, leading to higher efficiency in the allocation of capital in Europe. And with a single currency, other governments may have an interest in bringing countries with a lack of fiscal discipline into line.
In conclusion, even tough, there are a small number of countries of the EMU (European Monetary Union) such as Denmark, Sweden and the United Kingdom that are not for the total introduction of the EURO, because of the way their government works or by the idea that they will not be benefit but prejudice, I think that the introduction of the EURO is a very good way to centralize interests and to develop and grow as a great union, as what I really consider the European Union.
Maybe our country, and in a most generalize aspect, our continent is very “immature” and it is not prepared to make this kind of macro economical and political movements and unions, but I believe that we have to pay attention and follow closely this economic coalition because in the future we may be benefit by it and may join in a similar way with neighbor countries.
“A day will come when all the nations on our continent will form a European brotherhood… A Day will come when we shall see… the United States of America and the United States of Europe, face to face, reaching out for each other across the seas.”
Victor Hugo (1848)