The Euro Currency After 10 Years: Achievements and Challenges - Coursework Example

Client’s 30 August The introduction of Euro has brought in many significant changes in the European Economy. The most noticeable of them all is the economic integrity brought by the introduction of the Euro. The positive effects are not restricted to economy but they also positively influence the political climate in the European countries. This paper will throw light upon the benefits and the problems of the European single currency, which is Euro. In addition to this the position of the Euro after 10 years will also be analyzed. Benefits of European Single Currency The introduction of Euro in the year 1999 signaled the economic integration of the European countries. Prior to its launch there were ambiguities but after the launch all the issues quickly disappeared and Euro within no time became a favorite among the citizens residing in European Countries. Roughly around 320 million European citizens use the currency and find it really amazing and beneficial in more ways than one. Euro is used in almost all the European Countries but there are still exceptions like Denmark and United Kingdom who still use their own currencies, the British pound is used in United Kingdom and the DKK better known as the Danish Krone is used in Denmark. One of the biggest advantages of Euro is that it saves a lot of time and effort of the travelers who choose to travel with Europe. For instance if there is a Soccer game in Spain which a Greek citizen wants to witness, he/she can just straight away catch a flight and reach the Soccer stadium in Spain and watch the game. There is no need to covert the currency into some other currency. The same has resulted in saving a lot of time and effort of the European Citizens. This was not the case prior to the introduction of Euro. The people had to exchange money every now and then to meet their demands but after the introduction things have changed for better. Another major advantage is the clarity in prices whenever an European citizen travels to another European country it becomes very easy to compare and buy the products of his/her choice; this facility was not available to the citizens prior to the launch of the Euro. Earlier even if a Tourist wanted to buy a product desperately, he/she was made to think thrice about it because of the different currencies within Europe but these days there is transparency in prices with regard to the currencies and this has only happened because of the introduction of the Euro. Euro has brought in a lot of Economic and financial stability, a Businessman is much less prone to risk when using Euro as his/her currency. Single currency keeps the inflation rate under a good check, which is extremely important for an economy and the Euro does exactly that. It keeps interest rates and the rate of inflation under check hence it can be said that the Euro plays a pivotal role in maintaining the economic growth of the European nations. “Having a single currency and an economic and monetary union strengthens Europe’s role in international fora and organizations like the International Monetary Fund, World Bank, and Organization for Economic Co-operation and Development.” (The Euro & You) Euro strengthens the position of all the European countries, having a single currency helps a lot in the growth of the country and in this particular case Europe. Euro is very frequently used in international trade; it has very quickly become a part and parcel of the lives of many businessmen who carry out trade at large scales. Countries also have started using Euro as the currency for International trade. “A single currency makes Europe a strong partner to trade with and facilitates access to a genuine single market for foreign companies, who will benefit from lower costs of doing business in Europe.” (The Euro & You) The investors get a lot of positive things by using the Euro as their currency; they get more access to liquid financial markets and also they get a larger access to the same. The transaction cost of the countries which have euro as their currency decreases to a good extent. The levels of uncertainty decrease with regard to so many important issues, the most important of them all being the exchange rate. So using the Euro provides transparency and an open market where there is economic integration. The European countries become more stable when they use the Euro as their currency. The finances of the European countries become more efficient and they become more equipped with regard to problem solving. All these were the most important advantageous of using a single currency. The next part of the paper will present a comprehensive view on the problems which arise on from using a single currency. Problems of the European Single Currency The biggest disadvantage is that it increases the financial cost of an institution in getting adjusted to the new currency. The introduction of a new currency makes the public and the private institutions spend a lot of money, for instance a lot of money is spent on office forms, bank accounts, databases etc. It also affects the cost of notes and coins but this is not as big a disadvantage as the others mentioned above. The introduction of Euro had made European nations incapable of handling asymmetric shocks. An asymmetric shock affects the members differently and there is no equality of the shock, so it is a type of a shock which affects the EU (European Union) members unequally. An asymmetric shock brings down the growth of an economy to a very low level but the same will not be seen in other European countries because the affect of the shock is unequal and it affects countries differently. Fifteen different countries using the same currency can have a very negative affect the consistency. This can be understood with the help of an example, there might be depression in one area and the people might struggle to get work, on the contrary another area in the same country can flourish without witnessing any problems of depression or unemployment. So a country is very likely to witness contrasting pictures when using the Euro as their currency. “Loss of national sovereignty is the most often mentioned disadvantage of monetary union. The transfer of money and fiscal competencies from national to community level would mean economically strong and stable countries would have to co-operate in the field of economic policy with other, weaker, countries, which are more tolerant to higher inflation.”(Pros and Cons) Another major disadvantage is the loss of Sovereignty. When there is a same currency in many neighboring countries the power from one county inevitably travels to another country resulting in the loss of the ability of the national government to control policy. Another major disadvantage is the over estimation in trade benefits, “Some economists argue that the trade and cost advantages of EMU have been grossly overestimated. There is little to be gained from moving from the present system which has some stability built into it, to the rigidities which EMU would bring.” (Advantages & Disadvantages) Another major disadvantage is that tensions can flair up any moment between the European nations, who use euro as their currencies, because there would not be one political representative to present and talk on an issue, there would be many representatives and a difference of opinion would be inevitable and the same would give rise to political tension. “With their own national currencies, countries could adjust interest rates to encourage investments and large consumer purchases. The euro makes interest-rate adjustments by individual countries impossible, so this form of recovery is lost. Interest rates for all of Euro land are controlled by the European Central Bank.” (Disadvantages and the Risks of the Euro). It becomes highly unlike that the monetary policies are implemented on a domestic level and this is because of the fixed exchange rates. As talked about earlier, the level of consistency in a country may vary from area to area and this is another big drawback of using the Euro. In comparison with the merits, the demerits seem to be less. There are numerous merits in comparison to handful drawbacks, so it can be said that Euro should be used by the European Countries in spite of its drawbacks. Conclusion The paper threw light upon the various aspects of using Euro as a major currency in the European single market, the paper dealt with both the negative as well as positive aspects of using Euro as a major currency in the European single market and it is very fair to say that using Euro is very convenient for the Europeans and for the various governments in Europe as outlined in the paper. One of the biggest advantages of using a Euro is it integrates the economy of Europe and this is really very beneficial for the European Economy. When citizens based in Europe travel to the other European countries, they need not convert their currency into some other currency this is another very big advantage. Earlier the travelers found it very difficult to buy products in other European nations as their currency was different than the one used by the travelers, this whole issue has been sorted by the introduction of the Euro. The introduction of the Euro provides clarity in the price of any product that the travelers plan to buy; they have never experienced such clarity, only the introduction of the Euro has changes things around for better. There are some disadvantages too like the introduction of the Euro is making life difficult for all the institutions, it is taking them a lot of time to adapt to this introduction but gradually everything will change, considering the case overall it is very fair to say that the introduction has been very successful and it has certainly integrated the European economy. References “Advantages & Disadvantages (2009).” In Library. Think quest. Retrieved from: http://library.thinkquest.org/19110/english/advantag/advantag.html “Disadvantages and the Risks of The Euro (2010).” In How stuff Works. Retrieved from: http://money.howstuffworks.com/euro11.htm “Pros and Cons (2009).” In BBC News. Retrieved from: http://news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm “The Euro & You (2011).” In The European Commission’s Delegation to Australia. Retrieved from:http://www.delaus.ec.europa.eu/euro_and_you/1_advantages.htm Read More