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Problems Associated of a Common Currency as Illustrated by the Current EU Crisis - Essay Example

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Title Name University Course Instructor Date Challenges associated with the use of common currency as illustrated by EU crisis Introduction In the global economy, the notion of the common currency is a rare phenomenon. While this idea has not received a significant support, the achievement of euro illustrates that unification of currency can work and may produce various economic advantages and limitations, as well…
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Problems Associated of a Common Currency as Illustrated by the Current EU Crisis

Download file to see previous pages... Similarly, it has been a key achievement in that about 330 million European Union populations utilize it as their currency and benefit from its advantages. Although the use of a common currency may be beneficial to member states, it may have some various shortcomings. For instance, experts agree that there are various challenges associated with the use of a unified currency – as Eurozone member states are learning. Even though, the first few years of using a common currency went impressively, breaks have started appearing on the Eurozone as the global crisis intensifies, (Gabrisch and Ru?diger, 45). The original objective of the Euro was to enhance the overall economic productivity of the European countries, as fragile, minority nations had changed to be increasingly competitive. On the contrary, fragile nation enjoyed increased purchasing supremacy without the need of producing extensive products and services. Similarly, overall growth of productivity reduced in Europe from about 1.7 yearly prior to the euro to half the cost since. Additionally, euro suffers from the disintegrated political authority that controls its economy. Each member state can issue it independent debt; the euro is beneficial and useful in about 16 diverse bond markets, (Horngren, Srikant and Madhav 63). Similarly, each economy designs its own expenditure policies and tax; some nations now experience debts greater than their GDP. Similarly, while the counties have been exempted from the currency fluctuations impacts, euro states now experience a diverse – sometimes extremely painful – effect from the global investors’ whims. Borrowing costs in increasingly obligated nations such as Spain and Portugal are increasingly advanced than of Germany that has accrued the enormous pile of savings. In addition, these nations experience diverse painful choices that they did not have to address in the past when they could devaluate their domestic currency. For instance, Italy experiences some stark options, which continue to mess up with the economic growth of the country. Italy contemplates on whether to boost productivity by reducing wages, or leave the euro and devaluate national debts and design its local currency, (Grauwe 89). However, pursuing such decisions would make the situation extremely difficult for Italy to borrow. Some euro nations with extensive debts experience downward spirals as these debts deepen costs leading to increased tax or low spending. Reducing future costs of borrowing implies increasing productivity – via either layoffs or reduction of wage or both. None of these options is likely to receive much support by the day of election. A common currency enhances reduced and steady inflation, stability in the rate of exchange and strong public finance between members of European Union. For instance, some Eurozone nations have reported experiencing financial crisis because of shared currency. Additionally, experts agree that Euro was designed on the basis on a false premise that a common currency would result to unification of economic performance among members. For instance, Greece would resemble Germany and Portugal would resemble Finland. In fact, the creation of Euro has resulted to intensification of the gap between developed and developing nations as ...Download file to see next pagesRead More
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