Monetary Unification in Europe - Essay Example

Monetary Unification in Europe d with great concern is Europe in the verge to either continue or cease the war on monetary unification. Recently, the Euro celebrated its first ten years since its existence, and as at January 2009, it was circulating in sixteen European Union member states. This process of unifying European currency started back in the aftermath of World War II and progressed gradually for over 60 years. Critics were so skeptical on the Europe’s idea of monetary unification claiming that Europe was not close to optimal monetary union. This idea was just a mere political project, which did not give into account economic fundamentals and was doomed to fail the single currency, and Europe’s failure to see monetary unification as an evolutionary process. Over the past few years, the Euro has tremendously challenged the US dollar, which is globally reserved currency, and within a very short period, it has transformed economic and political landscape in Europe. Monetary experiments has never been such an exciting history as there have been no any sovereign state surrendered its currency to a common central bank currency restraining from monetary sovereignty (Charles, 2010:176). Although the need to unify European currency started a long time ago, we begin to review its recent attempts to attain that goal. Prelaunch, which took place in late 1989, witnessed France extract German commitment to monetary union in favor of German reunification. The same year, Jacques Delor, filed a report introducing European Monetary unification in three stages. It comprised of creation of institutions like European System of Central Banks charged with the responsibility to formulate and implement monetary policies. The phases between 1989 and 2002 gave a name to the common currency that was to unify the European states “euro”, which replaced the old currency unit, the ecu. The institution laid down steps to accomplish monetary unification first of which was abolishing exchange controls that saw capital completely liberalized in European Economic Community on July 1, 1990. On 7 February 1992, leaders from different European countries signed the Maastricht Treaty with the aim of creating a single common currency but without United Kingdom participating by January 1999. Having the treaty approved proved a challenge since countries such as Germany, France, and Denmark were reluctant (Evgeny, 159). Another attempt derived from Stage II of Delor’s report that led to the creation of European Monetary Institute in 1994 that replaced European Monetary Cooperation Fund with Alexander Lamfalussy as the first president. After sometime, there rose a pool of disagreements that led to adoption of euro as new currency on December 1995 doing away with the name ecu previously used as the accounting currency. Theo Wagel suggested the name. He was by then the German’s finance minister. Date 1 January 1999 was set for the launch of the currency name. With the launch of euro in the European Union, credit institutions were able to process real-time payments. This supposedly helped in serving monetary policy needs of Euro system as well as harmonizing business practices in the EU and promoting money market integration(Gertrude and Peter, 2003:13). Owing to the total number of states, the Euro bloc designed and produced new 7.4 billion notes and 38.2 billion coins for issuance to consumers and business operators on 1 January 2002. This attempt displayed some obsolete results with tasks set to educate European people on the new currency and finally on 15 December 2001 banks commenced exchanging euro starter kits. As a matter of encouraging continuous effectiveness and integration of European currency, banks all over Euro zone, offered same high quality services, interfaces, and single price structure irrespective of their location. Such policies facilitated unification of currency across Europe as banks and other financial institutions operate under similar conditions. In the wake of 2002, festivities took place in front of European Central Bank headquarters in Frankfurt whereby a large euro coin was displayed in front the building symbolizing the transformation (Jakob, 2010:33). Meanwhile, a project established to overcome the current fragmentation in the European settlement infrastructure because of feedback received from governing council welcoming all the European Central securities to foster in the initiative. Such initiative constituted towards integrating securities and in return, it brought about monetary unification. In addition, Europe’s objective in standardizing communication protocols, offering facilities like continuous optimism and nighttime settlement as well, was to improve efficiency in collateral management hence cross-border settlement would become domestic dwell of tomorrow in the coming borderless market. Even after introducing euro as the common currency across Europe, other countries like Germany, France and Italy just to mention a few, maintained their original currency. This signified flexibility and thus created means for unification of currency in Europe without necessarily having imposing. The act played a major role in Europe’s conquest to bring about monetary uniformity (Lawrence, 2007:107). Moreover, people throughout Europe continent were able to make withdrawals over the Automatic Teller Machines filled with only Euros availing the currency to all diversified areas. This enhanced the spread of the currency to those places where ATM machines were available. In fact, the attempts extended further to include merchants in the process of wide spreading uniform currency whereby they accepted legacy money and in giving change, they used Euros. A process whose outcome saw Deutsch Mark in Germany ceased being legal tender on 1 January but exchanged at the banks. Europe was certain in achieving its set goal and objective; uniform currency, the reason why it was able to stop two strikes. Postal workers in France wanted to strike in fear of what the massive currency would have in store for them but fortunately, that did not happen. Where else employees at the BNP Paribas in France threatened to down their tools in order to disrupt the introduction of the euro. However, the period issued to end continuous circulation of legacy tender in European member state varied from one state to another with Germany’s Mark ceasing earliest on 31 December 2001. Portuguese escudos coins ceased to have monetary value immediately after 31 December 2002 even though bank notes remain valuable up to 2022. European continent has herself to congratulate as she immensely uplifted the euro from its brief crash when it dropped to an intraday low of $0.8296 on 26 October 2001up to $1 on 6 November 2002. Continuous efforts to keep the currency uniform fire ablaze prevailed with rapid increase in its value reaching its peak in 2004 at $1.35 and attained its climax versus the US dollar on 14 July 2008 at $1.5916 (Andre, 2002:91). Europe, bearing in mind the need to unify its currency, it went ahead to increase the value of the euro against the pound sterling. This was evident at the nightfall of 2000 where it peaked at 97.73p on 31 December 2008 thus encouraging its rapid international growth. Again, European economists suggested that they set in place-centralized power that would encourage giving incentives in order to keep the inflation low with the aim and desire to keep the euro in a prominent position in the international monetary market. Several adjustments made in favor of monetary unification are evident in enlargements made in late 2000s in conjunction with the 2004 enlargement clause. Acceding of other several states like Slovenia, Cyprus, and Slovakia in 2007, 2008 and 2009 respectively to the euro zone enlarged the European continent. This could only imply the increasing use of euro as a common currency (Karl, 2006:147). During the recession era that resulted in global financial crisis, the European Union was negatively affected as of 2007 to 2008 and the first quarter of 2009 prior gripping growth. The effort it displayed in getting back to its feet saw Estonia accede to the Euro zone and subsequent Iceland’s application to join the European continent (Lloyd, 2005:69). In response to that economic recession, euro zone leaders met on 11 October 2008 in Paris in as state heads in order to endorse reforms that would witness European economy stabilized. These extraordinary meetings to solve financial crisis in the euro zone, as a result foster stable and valuable euro money, and in turn encourage currency integration plan in Europe. In spite of initial fears speculated in the first quarter of 2009 that such a huge recession could see euro zone split, euro’s position strengthened as time went by. This is among the attempts Europe is making in view of unifying its currency. U-turn on the European Union treaties created by euro zone in late 2009 to 2010 in favor of bailing out member states without the ability to raise funds triggered other defaulted countries like Greece in April 2010. With probability for bail out, member countries, unable to raise funds were able to manage their finances well yet euro zone could maintain its current currency uniformity and continue struggling for more ways and reasons to engage other countries in struggle for uniform currency. Arguably, more steps in recent years to acquire uniform monetary currency led to proposals like European Monetary Fund and further economic integration. This, for a fact, would have a tremendous report, as other European states would have raised interests to join. The agreement reached over a proposal that stirred a whirlpool of controversies that EU member states should show their entire budget to the others was in line to embrace uniform currency, as this would reduce inflation, encourage economic growth and expenditure (Ronald and Abdulrazak, 2010:103). The new reform of stable and growth pact initiated on March 2011 with the aim of straightening adopted regulations that would impose penalties automatically to the member states who breaches either deficit or debt rule. Lately, Euro zone has enacted Euro Plus Pact that sets a large pool of amendments taking place ensuring further push for true economic governance involving a twice yearly euro zone heads summit and financial transaction tax. Anonymously, financial integration, which occurs where several countries use the common currency as it, opens and gives financial agents a wider access for money sources in both domestic and overseas markets. It also provides them with investment opportunities and creates deeper and liquid markets. As such more information and is pooled and processed effectively hence economies of scale are exploited fully (Charles, 2010:178). Financial unification further increases competition thus exerting pressure on financial services and promote financial development as well. Scholarly, Europe has based this argument on the persistence that has been in her fingertips while pushing for uniform currency in all member states. While in the course of attempting to unify its currency, European countries demonstrate the impact that could be reality if the efforts to have a uniform currency implemented without drawbacks. Member countries will be in a position to share risks in case of financial turmoil thereby Europe continues to attempt unifying its currency, as it is aware of the benefits. Harmonizing details on European ways of getting its currency unified, the falling in costs of transaction and market’s cooperate bond has had hold of our glimpse. Activities remain fragmented in retail banks, cross-bank markets displays tangible evidence of European countries’ monetary unification. With effective financial integration, euro continues to accelerate its penetration into other markets in European continent with the latest entry of Estonia and the well-awaited entry of Iceland. All over the12 euro area countries, the unified currency, euro, has fostered banking integration beyond 30%. Euro has implicated some important policies that include asymmetric shocks, which generate output and differentiates inflations. Discussed above is widely held presumption in which fiscal federalism serve to replace regional monetary autonomy (Andre, 2002:102). Argued upon are the influenced resource allocation and increased fiscal transfers as well as monetary unification in Europe believed to succeed if only it adopts international monetary policy within the community. In conclusion, it is evident as discussed in this paper that European Monetary Unification (EMU), a process that has received mixed reaction is reaching a critical juncture. The verdict of the present situation is that with the diverse critics as well as support, the there is no guaranteed grand achievement and nor terrible blunder as well. Those responsible should structure and govern monetary Unification appropriately for this will determine the effect since the process could continue for years. Bibliography Andre, S., 2002. Economic and Monetary Union and Economic policy in Europe. Cheltenham: Edward Elgar Publishing. Charles, H., 2010. Comparative Politics: Domestic Responses to Global Challenge. Florence: Cengage Learning. Charles, P. 2006. 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