View
232
Download
0
Category
Preview:
Citation preview
Despite the current problems facing the Euro, Latvia is planning to adopt the single currency in 2014. Analyse the
reasons why some EU members states like Latvia are still keen to join the Euro
zone.
Diana Forson Prescilia HodebourgBertug Korucu
Contents Introduction to the EU
The European Monetary Union
The Eurozone
Benefits and Drawbacks of the Euro
Latvia’s decision to join the Euro
Introduction to the EU
The European Union is an economic and political union of 28 members states.
The EU has developed a Single Market through standardised system of laws that apply in all member states.
The single currency is a complement to the single market.
EU Members Map
The road of the European Monetary UnionPhase
1 •From the Treaty of Rome to the Werner Report, 1957 to 1970•The treaty of Rome has little to say about money.•Bretton woods System
Phase 2
• From the Werner Report to the European Monetary System, 1970 to 1979• “Snake in the tunnel”
Phase 3
• From the start of EMS to Maastricht, 1979 to 1991• Replacing the “Snake in the Tunnel” put in place by European Community• The Delors Report
Phase 4
• From Maastricht to the euro and the euro area, 1991 to 2002• Maastricht Treaty approved• The Three stages to EMU
Criteria needed to join the Euro
Eurozone
Scenarios for Adoption of the Euro
The Euro Area and the Global Economy
Benefits of Adopting the Euro
Currency Stability◦ Gaining more strength
Reduced Threat of Exchange Rates Fluctuations◦ Tourism◦ Business Benefits
Lower Interest RatesSingle Market
Costs of Adopting the Euro
Too Tight Money◦ 1 Monetary Policy; 17 Fiscal Policies
Too Tight Budgets◦ Increase debt; decrease growth
Too Little TradeToo Much Financial Inter-Connection
LatviaPopulation: 2, 178, 443 Joined the European
Union: 1 May 2004Currency: Lats (LVL) until
31 December 2013, Euro as of 1 January 2014
Recovery from the Financial Crisis◦ 11.7% Unemployment◦ Public Debt 17% GDP
Should Latvia adopt the Euro? YESGuarantee of Economic and Political stability
◦Signal to investors Eurozone is expanding◦Pro-austerity policy makers use Latvia as an
example of austerity and what it can achieveAccording to criteria of Optimal Currency Area
◦Trade already exists with other EU members◦Labour markets relatively flexible◦Exposure to external shocks relatively
symmetrical to Germany and other Nordic countries
Lat is already to pegged against EuroDivorce from Russia
Should Latvia adopt the Euro?NO High levels of opposition amongst public (35% agree with
switch)◦ Fear of increases to prices when currency has changed
Risk of increasing inflation◦ Poorest member when joined in 2004 – convergence of incomes
(33%-53% per capita income (EU average) in 7yrs) currency will continue this convergence
Faster growth and faster inflation makes management of fiscal policy difficult◦ Pre crisis poor fiscal decisions lead to deeper impact of crisis on
country Difficult demographics
◦ Pressure on pensions and healthcare Whole of euro zone faces unresolved problems with banking
system
ConclusionEC has set out certain criteria
which states need to comply with before being accepted to join the Euro
Latvia gains problems as well as benefits◦Already has fixed exchange rate◦Political and economic decision
Reference List A. Evans-Pritchard. (2013). Mad Latvia defies its own people to join the Euro. Available:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100025122/. Last accessed November 2013.
BBC News. (1998). Special Report EMU: The Advantages. Available: http://news.bbc.co.uk/1/hi/special_report/single_currency/66473.stm. Last accessed November 2013.
Ecb.europa.eu.(2013). ECB: The euro. [online] Available at: http://www.ecb.europa.eu/euro/html/index.en.html [Accessed: 17 Nov 2013].
Economonitor. (2013). Why Latvia's decision to join the Euro makes sense. Available: http://www.economonitor.com/dolanecon/2013/06/10/why-latvias-decision-to-join-the-euro-makes-sense/. Last accessed November 2013.
Eumatters.ie.(2013). Why was the EU founded?. [online] Available at: http://www.eumatters.ie/why-was-the-eu-founded-.html [Accessed: 17 Nov 2013].
Europa.eu. (2013). EUROPA - How the EU works. [online] Available at: http://europa.eu/about-eu/index_en.htm [Accessed: 17 Nov 2013].
European Commission. (2013). Adopting the Euro. Available: http://ec.europa.eu/economy_finance/euro/adoption/index_en.htm. Last accessed November 2013.
European Commission. (2013). Latvia and the Euro. Available: http://ec.europa.eu/economy_finance/euro/countries/latvia_en.htm. Last accessed November 2013.
S. S. Nello. (2012). The Eurozone: Structure, Performance and Outlook. In: The European Union: Economics, Policies & History. 3rd ed. Maidenhead: McGraw-Hill Education. p232-260.
S. S. Nello. (2012). The Theory of Economic and Monetary Union. In: The European Union: Economics, Policies & History. 3rd ed. Maidenhead: McGraw-Hill Education. p195-215.
T. Paterson. (2013). Latvia's Reward for Austerity? Membership of the Euro 2014. Available: http://www.independent.co.uk/news/world/europe/latvias-reward-for-austerity-membership-of-the-euro-in-2014-8646364.html. Last accessed November 2013.
Recommended