Scribd Logo
Upload

Welcome to Scribd!

  • 340 views

    Advantages and Disadvantages of Euro

    Uploaded by

    Bishal Kumar Karn
    1. Transaction costs for firms doing business across EU countries will be eliminated as currency exchange will no longer be needed with a single euro currency. This will increase profits for EU firms. 2. Price transparency and comparisons across EU countries will improve without currency exchange rate distortions, allowing resources to be allocated more efficiently. 3. Uncertainty from currency fluctuations that discourage investment between countries will be removed with the universal euro currency within eurozone.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Advantages and Disadvantages of Euro

    Uploaded by

    Bishal Kumar Karn
    340 views2 pages
    1. Transaction costs for firms doing business across EU countries will be eliminated as currency exchange will no longer be needed with a single euro currency. This will increase profits for EU firms. 2. Price transparency and comparisons across EU countries will improve without currency exchange rate distortions, allowing resources to be allocated more efficiently. 3. Uncertainty from currency fluctuations that discourage investment between countries will be removed with the universal euro currency within eurozone.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. Transaction costs for firms doing business across EU countries will be eliminated as currency exchange will no longer be needed with a single euro currency. This will increase profits for EU firms. 2. Price transparency and comparisons across EU countries will improve without currency exchange rate distortions, allowing resources to be allocated more efficiently. 3. Uncertainty from currency fluctuations that discourage investment between countries will be removed with the universal euro currency within eurozone.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    340 views2 pages

    Advantages and Disadvantages of Euro

    Uploaded by

    Bishal Kumar Karn
    1. Transaction costs for firms doing business across EU countries will be eliminated as currency exchange will no longer be needed with a single euro currency. This will increase profits for EU firms. 2. Price transparency and comparisons across EU countries will improve without currency exchange rate distortions, allowing resources to be allocated more efficiently. 3. Uncertainty from currency fluctuations that discourage investment between countries will be removed with the universal euro currency within eurozone.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Advantages

    1. Transaction costs will be eliminated. For instance, UK firms currently spend about 1.5 billion a year buying and selling foreign currencies to do business in the EU. With the EMU this is eliminated, so increasing profitability of EU firms.

    2. Price transparency. EU firms and households often find it difficult to accurately compare the prices of goods, services and resources across the EU because of the distorting effects of exchange rate differences. This discourages trade. According to economic theory, prices should act as a mechanism to allocate resources in an optimal way, so as to improve economic efficiency. There is a far greater chance of this happening across an area where E.M.U exists.

    3. Uncertainty caused by Exchange rate fluctuations eliminated. Many firms become wary when investing in other countries because of the uncertainty caused by the fluctuating currencies in the EU. Investment would rise in the EU area as the currency is universal within the area, therefore the anxiety that was previously apparent is there no more. 4. Single currency in single market makes sense. Trade and everything else should operate more effectively and efficiently with the Euro. Single currency in a single market seems to be the way forward. 5. Rival to the "Big Two". If we look out in the world today we can see strong currencies such as the Japanese Yen and The American $. America and Japan both have strong economies and have millions of inhabitants. A newly found monetary union and a new currency in Europe could be a rival to the "BIG TWO". EMU can be self-supporting and so they could survive without trading with anyone outside the EMU area. This fact makes the Euro very strong already, and even George Soros couldn't affect it (well, hopefully!!!!). The situation that EMU is in is good as it seems that it can survive on its own, with or without the help of Japan and U.S.A. 6. Prevent war. The EMU is, and will be a political project. It's founding is a step towards European integration, to prevent war in the union. It's a well known fact that countries who trade effectively together don't wage war on each other and if EMU means more happy trade, then this means, peace throughout Europe and beyond (we hope). 7. Increased Trade and reduced costs to firms. Proponents of the move argue that it brings considerable economic trade through the wiping out of exchange rate fluctuations, but as well as this it helps to lower costs to industry because companies will not have to buy foreign exchange for use within the EU. For them, EU represents the completion of the Single European Market. It is vital if Europe is to compete with the other large trading blocs of the Far East and North America.

    8. The Political agenda. There is also a political agenda to European bank (the European System of Central Banks -ESCB), the complete removal of national control over monetary policy and the partial removal of control over fiscal policy. Individual nation states will lose sovereignty (i.e. the ability to control their own affairs). It will be a considerable step down the road towards political union. There are many in the EU who favour economic political union and they are very much in favour ot EMU. There are also many who wish to keep national sovereignty and are strugging to prevent EMU, whatever its merits might be, from going ahead.

    Disadvantages
    1. The instability of the system. Throughout most of the 1980s the UK refused to join the ERM (Exchange rate mechanism). It argued that it would be impossible to maintain exchange rate stability within the ERM, especially in the early 1980s when the pound was a petro-currency and when the UK inflation rate was consistently above that of Germany. When the UK joined the ERM in 1990 there had been three years of relative currency stability in Europe and it looked as though the system had become relatively robust. The events of Sept. 1992, when the UK and Italy were forced to leave the system, showed that the system was much less robust than had been thought. 2. Over estimation of Trade benefits. Some economists argue that the trade and cost advantages of EMU have been grossly over estimated. There is little to be gained from moving from the present system which has some stability built into it, to the rigidities which EMU would bring. 3. Loss of Sovereignty. On the political side, it is argued that an independent central bank is undemocratic. Governments must be able to control the actions of the central banks because Governments have been democratically elected by the people, whereas an independent central bank would be controlled by a non elected body. Moreover, there would be a considerable loss of sovereignty. Power would be transferred from London to Brussels. This would be highly undesirable because national governments would lose the ability to control policy. It would be one more step down the road towards a Europe where Brussels was akin to Westminster and Westminster akin to a local authority.

    You might also like