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Single European Currency

Page history last edited by Jasmine Ganeshalingam 13 years ago


 

The European Union must make important decisions and changes in order to improve its function and effectiveness for its member states. However, not all changes can be smoothly integrated into the existing form of the European Union. In the long term therefore, these changes may prove to challenge its very existence.

 

Single European Currency

 

The phrase 'single European currency' simply denotes a European, shared economy in which most of its member states share the same currency in order to accelerate integration within Europe. Although this is a concept quite simple to understand, its actual effects are more complicated and difficult to analyse. 

 

The single European currency was introduced in 1999, although Winston Churchill had previous discussed the idea of a 'sharing economy' in the early 20th Century, on the grounds of a possible unification of Britain and France. Churchill’s view was that Franco-British Union should "provide for joint organs of defense, foreign, financial and economic policies" (Shlaim 1974, p. 27).   

 


 

Single Currency: a Beneficial Change or a Challenge?

 

The single European currency although a purely economic topic, has affected the European Union both in an economic and socio-political aspect. The economical aspect demonstrates its effects on the economies and productivity of its member states and the socio-political aspect shows the influence it has had on political changes and in the long term, the European integration process.

 

It is widely argued that the single currency has been a beneficial change for the European Union, promoting trade and raising the productivity rates, as well as contributing to the financial integration (Garganas 2007), when it works effectively around the member states. Conversely, it could also pose as a challenge threatening the EU economy when individual economic problems arise in different countries. The most recent and helpful example to view the notion of single currency as a challenge to the entire EU is the European financial debt crisis that started in 2010.

 

As known, European countries that wish to join the Euro are required to fulfill the convergence criteria introduced in the Maastricht Treaty (Deroose and Baras 2005, p. 128 and Torres and Giavazzi 1993, p. 8). These requirements ensure that a single currency is effective and beneficial under particular circumstances as the main purpose of the single currency is to increase productivity of the EU. The increased interdependency between member states of the EU demonstrates each state’s reliance on the stability of fellow members’ economies. If an economic problem involving one member or more arose, it would automatically affect all member states of the European Union (Garcia-Vega and Herce 2006, p. 88 and Berting 2006, p. 197). Hence, whenever stability is not present, the single European currency can present a serious challenge to the EU.

 

The extent to which this acts as a challenge for the EU directly affects the existence of the European Union politically, economically and socially.

 

The challenge the single currency provides to the EU can be clearly seen through the financial debt crisis that started in Europe in 2010. As aforementioned, the creation of a monetary union increases economic and socio-political interdependence, concomitantly increasing the vulnerability of the Eurozone states. The financial debt crisis of 2010 occurred due to a high number of unpaid debts between five countries of the Eurozone; Spain, Greece, Ireland, Portugal and Italy (Marsh 2010).

 

The political challenges that arose as a result of this incident are mostly concerned with the changes in policies and appropriate reforms implemented to help the European Union gain enough power to emerge from the crisis. According to a report produced by the Council of the European Union, on March 15th 2011, a reform in the ‘Stability and Growth Pact’, has been implemented with aims at ‘strengthening economic governance in the EU’ (p. 1). More specifically, a change in the 'Stability and Growth Pact' denotes changes in the national government spending and taxation to influence the economy (ibid.). However, this procedure may prove to be time and cost consuming, affecting the position of the EU and causing it to operate at a slower rate and sometimes unstably and unproductively. 

 

In terms of the economic changes, it is logical that productivity and growth have been affected. More particularly, the big rise in unemployment rates as published in Annual Growth Survey by the European Commission, could potentially result in a low output growth in the countries of the EU (2011, pp. 7, 18). Furthermore, it can be seen that the debts of individual member states have been exceeding the market value of all of the products they produce, indicating a poor economic productivity (p. 7). It could be argued that this puts the EU in an unstable position thus causing uncertainty in the future of current markets.

 

The financial assistance that has been provided to Greece by Germany and other strong states of the European Union has been opposed by a lot of individual in various states (Guardian 2010 and NY Times 2010). This opposition has been likely to create hostility between European countries and Greece, concerning the bail out, which as logical, does not enhance the idea of single European identity.

 


 

Conclusion

 

The idea of a united Europe comes into existence through activities that will promote its political, economic, social and even technological integration. The process of this integration however, is not always something easily achieved. The single European currency as a measure to further political integration has proved to be beneficial when good cooperation between member states exists and when the fixed Maastricht criteria are met. In circumstances where member states do not meet these criteria, the single European currency can prove to be damaging not only for the ‘failed’ state but also for the other member states due to their heavy dependence on each other.

 


 

Bibliography

 

Berting, J. (2006), Europe: a Heritage, a Challenge, a Promise. The Netherlands: Eburon Academic Publishers.

 

Connolly, K. (2010), 'German Opposition to Greek Debt Bailout Gathers Pace'. Guardian [Online] Available at: http://www.guardian.co.uk/business/2010/apr/26/germany-condemns-greece-debt-bailout (Accessed: 3rd April 2011)

 

Council of the European Union (2011), Council reaches agreement on measures to strengthen economic governance, pp. 1-3. [Online] Available at: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/119888.pdf (Accessed: 2nd April 2011)

 

Deroose, S. and Baras, J. (2005), 'The Maastricht Criteria on Price and Exchange Rate Stability and ERM II'. In: Schadler, S. (ed.), Euro Adoption in Central and Eastern Europe: Opportunities and Challenges. Washington, D.C.: International Monetary Fund, pp. 128-141.

 

European Commission (2011), Annual Growth Survey: Annex 2 - Macro-economic Report, pp. 2-24. [Online] Available at: http://ec.europa.eu/europe2020/pdf/2_en_annexe_part1.pdf (Accessed: 28th March 2011)

 

Garcia-Vega, M. and Herce, J. A. (2006), 'Independent Growth in the EU: The Role of Trade'. In: Weeks, R. V. (ed.) International Trade Issues. New York: Nova Science Publishers, Inc., pp. 87-106.

 

Garganas, N. C. (2007), 'Does One Size Fit All? Monetary Policy and Integration in the Euro Area'. Speech by Mr Garganas, N. C., Governor of the Bank of Greece, at a visit to the Central Bank of Chile, [Online] Available at: http://www.bis.org/review/r071107c.pdf?frames=0 (Accessed: 1st April 2011)

 

Kulish, N. (2010), 'Opposition Grows in Germany to Bailout for Greece'. The New York Times [Online] Available at:http://www.nytimes.com/2010/02/16/world/europe/16germany.html (Accessed: 3rd April 2011)

 

Marsh, B. (2010), 'Europe's Web of Debt'. The New York Times [Online] Available at:http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html (Accessed: 21st March 2011)

 

Schadler, S. (ed.) (2005), Euro Adoption in Central and Eastern Europe: Opportunities and Challenges. Washington, D.C.: International Monetary Fund.

 

Shlaim, A. (1974), 'Prelude to Downfall: The British Offer of Union to France, June 1940'. Journal of Contemporary History, Vol. 9 (3) , pp. 27-63. London, UK: Sage Publications, Ltd.

 

Torres, F. and Giavazzi, F. (1993), 'Introduction'. In: Torres, F. and Giavazzi, F. (eds.), Adjustment and Growth in the European Monetary Union. Cambridge, UK: Cambridge University Press, pp. 1-8.

 

Torres, F. and Giavazzi, F. (eds.) (1993), Adjustment and Growth in the European Monetary Union. Cambridge, UK: Cambridge University Press.

 

Weeks, R. V. (ed.) International Trade Issues. New York: Nova Science Publishers, Inc.

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