The Role of Euro Zone in the European Union - Essay Example

Euro area speaking in one voice Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 26th November 2012 This paper is written to evaluate the possibility of the Euro area speaking in one voice internationally and on economic matters. The paper looks at the position of the Euro zone in the European Union (EU), Economic and Monetary Union (EMU), European Central Bank (ECB) and in the International Monetary Fund (IMF) and how speaking in solitary say can be of benefit to the Euro zone as per their positions in these Organizations. The paper analyses the possibility of the Euro area speaking in unison and its impacts to the member states. The Euro area comprises of the state’s members of the European Union (EU) that have taken on the Euro currency as their currency. Currently the Euro area has around 330 million citizens living in 17 member countries, the number might increase with prospect enlargements due to dispersal of the benefits of a single currency building in the EU. The EU members are all parts of the Economic and Monetary Union (EMU); they organize their economic policy making in order to support the economic aims of EU. However, some Member States took a step further and replaced their national currencies with the Euro as the single currency. The adoption of the euro as a common currency saw the economies of the Euro-area more integrated. The economic integration has to be managed properly in order to realize the full benefits of the single currency. This makes the Euro area to be distinguished from the other parts of the EU as per its economic management, mainly on the monitory and economic policy ('Euro Area' 2002). Below is a map of the Euro area: Euro area Member States Member States which have not yet adopted the euro (derogation) Member States with an opt-out The opening of a new structure for growth that was decided by the leaders of the G20 in Pittsburgh raises the bet for the euro area to speak effectively with a solitary voice in order to ensure that its interests are duly protected at the global height. The euro has helped to protect the euro area as of the exchange rate and interest rate problems that had been attested to be very destructive during past catastrophes. The Euro has also played an important role in fastening the sound macroeconomic policies for the state Members enthusiastically thus pushing for the adoption of the euro, or whose currencies are concurrent to the euro. The European Central Bank (ECB)'s capability to do something speedily working together with chief central banks has contributed to the steadiness of the whole international financial system. However, the crisis also uncovered the exposure of various Member States that have mounted up macroeconomic imbalances. The same benevolent macroeconomic circumstances that made possible the growth of recognition worldwide authorized a number of euro-area Member States to finance quickly, nevertheless, more and more unbalanced economic growth, as the incoming capital was not at all times channelled to its largely productive uses. On the other hand, states in current account surplus were undergoing an instant fall in growth as soon as the global demand tailed off, since the mechanism of domestic demand by no means kicked in. Incomplete business in economic consolidation, monetary administration and the way Member States harmonize their cost-effective policies in EMU additionally made these vulnerabilities bigger than before and weighed on the euro area's capacity to take action on the predicament (McNamara& Meunier 2002). The commission’ 2008 EMU@10 communication on the 10 years of the EMU highlighted on the importance of making the most out of the single currency. This has seen the Euro area members challenged with the need to coordinate their micro-economic policies better, this calls on the increase on surveillance that will include micro-financial stability and competitiveness aspects and also increasing the ability to speak in as one. Meeting these challenges is very crucial at this stage in ensuring a smooth changeover as of the still easily broken upturn to self-sustained, fair growth. It also involves putting public finances back on a sustainable trail (Ardy& Begg 2002). There is also need to increase the growth potential, together with finding more balanced and new sources of growth, and dropping the crisis-inflated arrears heights is not something exacting to the euro area. Save for it sharing a currency and similar interest and exchange rates, it has more to gain from organizing its policies, and dealing with the fundamental root of harmful competitiveness growth amidst the Members have to be an essential fraction of the area's exit strategy from the crisis. An ingenious and coordinated pulling out of economic incentive and business hold up measures when time allows going with by convincing structural reorganization plans would definitely improve the viewpoint for price steadiness and make easy the conduct of the solitary financial policy. Harmonization should fundamentally take the shape of universal consideration on the suitable timing, sequencing and rate of bringing the strategy settings normal (Bruguel 2007). The commission calls for a more effective representation in the issue of international economic and financial organisation; this was argued out in the annual statement. The G-20 is being firmly recognized as the new podium for global monetary policy coordination, thus the euro area's exceptional economic and institutional individuality must be recognised. In this circumstance, the Euro group has to endeavour in developing a common point and be able to contribute to the functioning of the global structure for Sustainable, Strong and fair Growth, that was approved by the G-20 in Pittsburgh. This calls for a solitary stand in the Euro area. There was also a call from the commission to on Member States to show the political goodwill and leadership in order to twist common understanding into concentrated strategy act. Hopefully, the Lisbon Treaty will provide further momentum for getting to a better position the euro area economic governance; this can be achieved by strengthening the examining role of the commission and formally recognising the Euro group and its President (Robert 2008). The policy coordination of the Euro area becomes a complicated game when some right players fail to play. This makes it necessary for actions to be undertaken in order to see the problem looked into. The action taken will mostly involve the Euro area itself as well as those who are seeking to coordinate with the Euro area, or to whom the Euro-zone is looking forward to coordinating with. One of the key actions that need to be taken is the call for the Euro area to speak internationally together on economic matters (Dermot & Lucia 2009). An example is on the fact that currently the ECB is the body that represents the European financial authorities at the portions of the G7 meetings of the central bank governors and the finance ministers. At the point of the reminder of the meeting the heads of the national banks of Germany, France and Italy joins the meeting and at that point the EBC president leaves. Still, there is no ambassador of the European financial authorities at these meetings since there is no euro area economic authority (Robert 2008). The cure for this crisis lies partially in Europe and partially in other places. In Europe, it is attractive for the project in these European states to acquire its act jointly and settle on who is in and who is not in of the euro-zone and what the euro-zone is. Many aspects of the potential policy coordination lack congruence and might end up being a problem not only in Euro areas but also in its partners (Hallett 2002). A good example is the function of exchange rates in the modification of US exterior accounts that involves not only the relationship between the Euro and the Dollar but also the relationship between the euro and the sterling pound. There is the issue of who is in and who is out of the euro area that predominantly involves the United Kingdom; the United Kingdom is a full-fledged member of the G7 but also it, yet it is not a participant in the Euro area. (Edwin 2004) There is need for the Euro area to speak in a lone voice internationally. If togetherness will not be achieved, there will be a dilution of the messages of the Euro area and its credibility. It is viewed that the more the Euro area improves its internal economic governance, the more pressing it is for a strong and an efficient external representation of the Euro area. There is a proposal by the commission towards a more consolidated European voice and representation internationally and in various institutions such as the International Monetary Fund (IMF) and the G20.The big question is; is it possible for the Euro area to speak internationally in unison and overcome all the challenges? Robert (2008) calls for this unity saying that it is time that the Euro area has to upgrade its political importance and play a greater leadership role in the economy of the world. There is a good example in the sense that despite the Euro area having the Euro as a common currency, its members do not speak in single vote in the IMF. The lack of single vote fragments the influence of the Euro-zone thus making it have very little importance. There are various reforms being carried out in the IMF that will give Europe an opportunity to be the provider of leadership to the economy of the world. The important step that needs to be carried out by the Euro-zone is having a single voting group in the IMF. To achieve this there must be a unified stand in the Euro-zone that would be listened to by its entire people; this will also improve the euro in political provisos (Lorenzo 2006). It is indeed possible for the Euro area to unite. The Euro-zone is a success economically and that shows that the Euro can really unite the Euro area and they unite upgrading to its political importance. The Euro area has been witnessing a mixed performance since the launch of the new currency. On one side it has brought inflation down on average, however, there is a perception that the prices have increased. The long term interest rates have been brought to low levels and the euro has become a major international currency. The other side sees the growth performance being disappointing; this is despite the 2006-2007 upturn and the 1999-2000 boom. The reform efforts have also not accelerated with the member states failing to sufficiently adopt the new framework policy (Dermot H 2012). There is also the uneven performance of the member states thus the risk of asymmetric shocks therefore remains; this is despite the view that the single currency would promote convergence of growth and inflation rates. This calls for reform in the Euro area. The ECB ought to fully put into practice an inflation target administration, and this must be officially certified by the Euro group. Again, the centre of EU surveillance of economic discipline must more and more be on debts rather than shortfall. Also, the Euro group ought to think of issuing formal suggestions to a country whose strategy stands for a risk to the correct performance and the sustainability of the euro. Again, the Maastricht criteria for euro membership also need to be modified to be more economically pertinent to different situations in new EU member states. Most importantly, there is a need for the euro-zone to unite on exchange rate matters. As stated earlier in the paper, the president of the Euro group should be the natural representative (Blanchard & Giavazzi 2002). The problems that are currently in the Euro-zone are describable. Even after the introduction of the euro, Europeans have not been able to act as one; they have instead maintained their various national membership and representatives in the IMF. Despite the euro, the influence of the EU remains distributed among the 27 member states which participate singly in the IMF with the weight of their respective national quotas, and they also administer the associated voting rights on a nation state basis. The IMF is currently dominated by voting groups (members joining forces) which use their voting rights in the Executive Board. This means that if the euro-zone could come together as one it can have a vote that counts in the Executive Board (Greene & Travis 2002). Looking at the IMF, Europe is the largest power bloc (Bihan & Sahuc 2002). The votes of the member states of the EU add up to 32 per cent currently, which sums to almost twice that of US. The Euro-zone alone has a share of 23 per cent towers above the current largest and most influential member country; U.S.A. That withstanding, the balance of power in reality at the IMF turns the formal one upside down. The U.S has been the only country to have its own veto rights in the IMF. This makes it to have much more power than the EU despite the numbers. If the Euro-zone can manage to consolidate their national voting rights and hence speak and vote in one vote, they stand a turnover of the current situation. The Euro-zone should therefore embark on a strategy of “is more less might” and consolidate their national voting rights thus increasing its influence significantly despite the lower number of votes. It is indeed possible for the Euro-zone to speak in unison internationally if the member states overcome national egoism (Bruguel 2007). It is of importance to look at the Euro zone and its member states, and the issue of the single currency associated with the Euro zone; Euro. There is also the position of the Euro area in the EMU and how speaking in a solidarity can be of benefit to the Euro zone. Further the issues of the commission’ 2008 EMU@10 communication are discussed and analysed as with how they can be implemented to see the Euro area speak in as one. The stand of the UK as per the Euro area is also discussed briefly in here in. The paper looks into the proposal towards a more consolidated European voice and representation internationally and in various institutions such as the International Monetary Fund (IMF) and the G20. The Euro cannot act as a sole unifying factor in the Euro zone if there is no solidarity. The issue of speaking and voting in solidarity in the IMF for the Euro zone is paramount if the Euro zone wants to redeem itself from the worsening economic state. It is indeed evident that there is need for this action for the Euro zone to have an influence in the IMF. There is a conclusion that as per the benefits that are to be realized by the Euro zone if they speak in unison both internationally and at the economic issues, there is need for the Euro zone to speak in one voice. This is a possible thing especially if the member states do away with the element of egoism. References Ardy B & Begg I 2002, 'How Will EMU Affect Cohesion?’ Intereconomics, 37, 6, p. 300, Business Source Complete, EBSCO host, viewed 27 November 2012. Arestis P 2002, 'EMU AND THE EURO: CURRENT AND FUTURE PROSPECTS', Eastern Economic Journal, 28, 1, p. 21, Business Source Complete, EBSCO host, viewed 27 November 2012. Berger H 2002, 'Are Small Countries Too Powerful within the ECB?', Atlantic Economic Journal, 30, 3, p. 263, Master FILE Premier, EBSCO host, viewed 27 November 2012. Blanchard O & Giavazzi F 2002, 'Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?', Brookings Papers On Economic Activity, 2, p. 147, Business Source Complete, EBSCO host, viewed 27 November 2012. Bruguel 2007, coming of Age: Report on the euro area, Germany: Bertelsmann Stiftung. Dermot H & Lucia Q, 2009, European Perspectives on the Global Financial Crisis: JCMS Volume 47. Number 5. pp. 939–953 Dermot H & UwePuetter (ND) The European Union and the Economic Crisis Dermot H 2012, The Eurozone in 2011: JCMS Volume 50 Annual Review pp. 178–194 Detken C, Dieppe A, Henry J, Smets F, & Marin C 2002, 'Determinants of the Effective Real Exchange Rate of the Synthetic Euro: Alternative Methodological Approaches', Australian Economic Papers, 41, 4, p. 404, Publisher Provided Full Text Searching File, EBSCO host, viewed 27 November 2012. 'EURO AREA' 2002, Quarterly National Accounts -- Comptes Nationaux Trimestriels, 2002, 4, pp. 24-26, Business Source Complete, EBSCO host, viewed 27 November 2012. Green F & Travis L 2002, 'Preparations for the Euro by U.K. SMEs with Trading Links with the Euro Currency Area', Small Business Economics, 4, p. 307, JSTOR Arts & Sciences X, EBSCO host, viewed 27 November 2012. Hallett A 2002, 'Britain and the Euro', Atlantic Economic Journal, 30, 3, p. 335, Business Source Complete, EBSCO host, viewed 27 November 2012. Le Bihan H, & Sahuc J 2002, 'Implications of parameter uncertainty for monetary policy in a simple Euro area model', Applied Economics Letters, 9, 9, pp. 553-556, Business Source Complete, EBSCO host, viewed 27 November 2012. Lorenzo B 2006 Powerless Europe: Why is the Euro Area Still a Political Dwarf? In International Finance, 9:2, S.261-279. Lorenzo B 2006, A Single EU Seat in the IMF? In: Journal of Common Market Studies, 42 (2), S.229-48. McNamara K & Meunier S 2002, 'Between national sovereignty and international power: what external voice for the euro?', International Affairs, 78, 4, pp. 849-868, Business Source Complete, EBSCO host, viewed 27 November 2012. Robert B 2008, Spotlight Europe: One Voice for the Euro, Germany: Bertelsmann Stiftung. VII. INFLATION PERSISTENCE IN THE EURO AREA: The role of policy in facilitating adjustment' 2002, OECD Economic Outlook, 72, p. 168, Business Source Complete, EBSCO host, viewed 27 November 2012 Read More