An Economic and Monetary Union - Dissertation Example

Download file to see previous pages An economic and monetary union was suggested by the European Commission in the year 1998. They had predicted that this would encourage more investment, help increase competition, rejuvenate the European economy and the single market, and benefit the population of Europe concerning their work and travel requirements. Some of the greatest arguments in favor of the single currency move were that it would result in the integration of the markets of Europe and the removal of uncertainties that result from an unpredicted exchange rate. It was also expected to increase the mobility of capital and induce transparent pricing. The European Commission carried out research and came out with an estimation that 0.33 percent of European GDP was lost in the process of conversion of currency or transaction costs. A traveler in Europe could have spent nothing but still would have lost a significant amount of money by only changing currencies. The system was seen as one which would introduce lesser volatile interest rates, thereby supporting low inflation and higher growth. Optimists believed that the Euro would reach the same state as the Dollar and share the spotlight. It would make Europe the largest exporter and importer and the currency spreading over a vast area, second only to the dollar. A further embrace by all 15 nations would make it the world’s largest economy (Aldcroft and Sutcliffe, 1999, pp 250-252; Carbaugh, 2010, pp. 286)
However, the countries and leaders opposing it had their views fixed on this issue being a political motive rather than an economic motive. A very important point against this monetary union focused on the order of the process and revealed that it was being executed in a reverse order against that of the US. The American states achieved political unity before going in for a merger of the dollar for all states. It unified the currency and the debt and established a national economy. The union of the European countries would severely limit the freedom of the government of the individual countries. This meant that the countries could no longer change their exchange rates to suit their national situations. Provisions for penalizing excessive budgetary deficits would tighten public expenditure in countries. Arguments in favor of the single currency would only be relevant for Germany, France, Austria, and the Benelux countries that followed the same kind of monetary policy. The currency’s stability in the wake of speculative attacks was applicable only for the first 3 years. Many structural reforms were also needed by most of the member states such as tax reforms, labor market, and the stand on the welfare state. Fears of overvaluation of the Euro and impending inflation were also thought of. ...Download file to see next pages Read More