European Economic and Monetary Union

Last Updated: 27 Jul 2020
Pages: 7 Views: 75

Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people, goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound economic policies and to coordinate these policies very closely.As trade between the EU Member States reaches 60% of their total trade, EMU is the natural complement of the single market.

This market will work more efficiently and deliver its benefits more fully with the removal of high transaction costs brought about by currency conversions and the uncertainties linked to exchange rate instability. EMU and the economic performance of the Euro area will have their largest external effects on neighboring economies in western Europe and on developing and transition countries with important trade and financial links to Europe, including countries that link their currencies to the Euro.

Among emerging market economies, those likely to be most affected are the transition countries of the central and Eastern Europe and the Baltics.The global environment has been favorable in a number of respects for the transition to EMU and the achievements of its objectives. The strong demand for euro-area exports from industrial countries at more advanced stages of the business cycle and the depreciation of the currencies of euro area countries over the past four years fostered a strengthening of growth in the euro area and helped to offset the effects of the Asian crisis.

Order custom essay European Economic and Monetary Union with free plagiarism report

feat icon 450+ experts on 30 subjects feat icon Starting from 3 hours delivery
Get Essay Help

There are also challenges for EMU in the global economic environment:

The crisis in Asia and other emerging market economies could produce adverse spillover effects and make the monetary policy more difficult to carry out.

The continuation of the crisis could result in weakening of the external demand, which, in turn, could dampen confidence and domestic demand.

The financial market volatility could increase the uncertainty in assessing the economic indicators.

The economic crisis in emerging markets could influence the commercial banks in the euro- area to make substantial provisions for non-performing loans.

It is, of course, impossible to predict the properties of the behavior of the exchange value of the Euro. With regard to broad trend, it seems likely that the Euro will tend to appreciate against the U.S. dollar and pound sterling over the next few years, but depreciate against the Japanese yen when Japan"s economic recovery begins.

The United Kingdom and the United States have reached relatively advanced stages of their cyclical upswings, with resources more fully utilized than in the euro area, the Euro"s initial value comparing to the pound and the U.S. dollar can reasonably be considered to be below its medium-term equilibrium. As the economic recovery in Europe proceeds and the growth in the U.K. and U.S. economies slows, the Euro will most likely appreciate against those currencies. On the other hand, Japan economy remains in the critical position. The resumption of moderate growth will lead to a recovery of the yen. Thus Euro is expected to depreciate against the yen over the next few years.

According to some widely made predictions:

Euroland's capital markets, from equities to corporate bonds to municipal finance, will grow exponentially in coming years as the removal of cross-border currency risk drives pan-European markets.

The Euro will stand alongside the dollar as the second-most-important currency in the

world, reflecting its coming role in global trade and finance as well as its common usage by 290 million Euroland citizens.

The new central bank has been given the independence to pursue price stability as a

primary objective. This feature will affect the credibility of the ECB positively and thus the investors would see the Euro as a stable store of value in the next decade.

Once the single currency takes effect, the national central banks of the euro area will

reduce their international reserve holdings. Trade within the euro area will be denominated in a single currency and will no longer need to be backed by international reserves. Estimates of the EMU countries" resulting surplus of international reserves range from $50 billion to $230 billion.

The scenarios that are presented in the European Commission Forward Studies Unit"s report regarding the economic situation in Europe towards the year 2010, reflect the possibilities rather fairly. I personally find the report an accurate study containing precise predictions. Out of the five futures for Europe, I think the Scenario No.3 seems the most logical and possible theory to occur.

The reason I chose this particular scenario is because it focuses on the following issues:

Transformation of the public sector

Efforts to include Eastern Europe

Agreements on unemployment issues

Turning hierarchical pyramids on their heads

Although in some countries public administrations such as central, regional and local government have started to make preparations for the introduction of the Euro, in general the evidence is that such organizations have taken few practical steps to prepare for the changeover. The grounds mainly are that they have plenty of time because they operate largely at the 'retail end of the marketplace' and that they will need to await the circulation of the new notes and coins. The view of the Federation des Experts Comptables Europeens (FEE) is that this is a risky and potentially costly strategy and that early preparation is essential to reduce both risks and costs. Public administrations therefore ought to be preparing their own management and operations systems now for the changeover to the Euro according to advice issued by FEE.

In the near future, member states would often present the Commission with their convergence programs, which would also assess long term prospects for the public sector. These programs would indicate the durability of deficit cuts in the countries whose public economies have been urgently trimmed to meet Euro conditions. Economic growth and structural reforms to reduce cost pressures on the budget are permanent methods but, for example, special taxes need to be supplemented by corrective measures to ensure permanent

budget discipline. Indeed, the views of member states about the long term public economy could diverge when their euro-eligibility is assessed and the choice of euro members has to be explained to the public.

The European Union is currently being enlarged to include the transition countries of the Baltics and Eastern Europe. The countries that intend to join the union will need to show progress toward meeting the Maastricht criteria. Potential EU members must overcome a number of challenges. They need to progress with privatization and to continue to reduce government involvement in their economy while disassembling monopolies, removing trade restrains and developing flexible labor markets. Six countries-Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia-have received favorable opinions from the Commission on their applications. These countries have already made good progress in meeting the guidelines of the treaty.

In this particular scenario No.3, the accession negotiations of the Union with Turkey is mentioned. I personally think without the contributions of the Eastern Europe and the Baltics the future objectives of the Euro and the European Union can not be accomplished. Especially the future admission of Turkey to the Union is vital regarding the geographical position of this

country, which not only connects Europe to Asia but also, forms a bridge of culture, a common ground between people from different horizons. However the Union still ignores the importance of Turkey"s role in various agreements and settlements made between Europe and Asia which are vital for the future of EU. But in the next decade as it starts to see the big picture, the efforts of the Union to include the Eastern Europe in the game would increase remarkably.

Strong growth will allow further progress in reducing the euro zone's high jobless rate. Some of the member"s unemployment rate decreased drastically by keeping the game close to the euro zone standards.

Job growth has been spurred by record low interest rates, a result of cuts from high levels to assure euro zone convergence. Low rates are fueling domestic demand, especially consumer spending and construction. Business investment is also gaining. Still, global weakness is depressing exports, and that's why job growth is expected to slow a bit in the second half. Even as construction, agriculture, and services, especially tourism, post solid growth, manufacturing jobs fell .

The governments plan to cut prices in regulated utilities, likely to be followed by efforts to reform pricing in retail distribution and certain services. Some member countries have a lot of employees who want to work more hours. So automatically a connection is established between the government and the public. In 2010 the governments together with other businesses, local authorities and community associations would continuously try to move the obstacles in the way and make it easier for the unemployed citizens to find a job in a satisfying environment.

"Turning hierarchical pyramids on the heads". That phase itself made this scenario No.3 look more real than the others. Europe has a long history and the Europeans have lived through more dramatic events than any other culture of the world. It is now time to give the people of Europe something special. Only but only if " the hierarchical pyramids" are turned on their heads, will the Europeans thoroughly support the EMU and the Euro. Transformation of the public sector, efforts to include Eastern Europe and the efforts on the critical unemployment issue are all a part of the strategy in the new epoch " Shared Responsibilities". It is now time that people take the real issue in their hands and get in charge. The times when everything is expected from the governments are over.

For the professional organizations of Europe the launch of the Euro presents an important organizational and even philosophical challenge. By bringing down barriers to cross-border trade, the Euro makes a pan-European perspective crucial for efficient and effective operations. Many companies are, therefore, focusing on changing their culture, not their organizational structure. To be successful, Europeans will no longer be able to look at themselves as operating with complete autonomy; rather, they will have to see themselves as operating within a federation of businesses that, while independent, share common responsibilities.

Cite this Page

European Economic and Monetary Union. (2018, Jun 23). Retrieved from

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

plagiarism ruin image

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer