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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