European Monetary Union

From WikiTextbook

(Redirected from European Monetary Union (A level Econ))

1 Countries using the Euro
2 Countries that may join
3 Conditions for using the Euro
4 Problems with the Euro
5 Pulling out of the Euro
6 Summary
7 Conclusion
8 Links
9 Contributors

Countries using the Euro

Belgium, Germany, Greece, Spain, France, Italy, Ireland, Austria, the Netherlands, Luxembourg, Portugal and Finland. Denmark, Sweden and the United Kingdom are members of the EU but do not form part of the euro area. Denmark and the UK negotiated an "opt-out" Protocol to the EU Treaty, granting them the option of joining the euro area or not. If they decide to do so they must still fulfil the criteria set out in the Maastricht Treaty

[edit]

Countries that may join

The ten new Member States that joined the EU on 1 May 2004 (Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia) will join the euro area once they have fulfilled the necessary conditions. They will only do so once they have achieved the high degree of sustainable economic convergence with the euro area required for membership of the single currency.

[edit]

Conditions for using the Euro

High degree of price stability. Inflation should be no higher than 1.5% above the average for the three best European countries. Sustainable govt. finances. Stable exchange rate. Convergence in long-term interest rates.

[edit]

Problems with the Euro

Some countries due to join in 2007 (Estonia, Lithuania and Slovenia) are not yet meeting the conditions for joining. For those eastern countries experiencing a much higher rate of growth joining the euro could add two percentage points to inflation as they would not be able to appreciate their exchange rates. Whilst the ex-communist countries are experiencing high growth (and the current euro-zone very poor growth) it could be difficult for them to join without damage. Only Slovenia looks on course to meet its target of 2008.

[edit]

Pulling out of the Euro

Recently Northern League Welfare Minister Roberto Maroni said Italy should consider temporary re-adoption of the Lira. The single currency "has proved inadequate in the face of the economic slowdown, the loss of competitiveness and the job crisis", A recent poll also showed that the majority of Germans want to withdraw. The uncertainty has begun to disturb currency markets. If one pulls out it is likely to lead to others leaving and possibly a melt-down of the euro-zone. Countries up for joining such as Poland and the Czech Republic may change their minds due to the existing uncertainty.

[edit]

Summary

Some large members in the euro-zone are currently re-considering their position. The current political instability has worsened this. Eastern European countries are willing to join but are not meeting the economic conditions. Their economies are also very difference to those in the euro-zone; there is little convergence.

[edit]

Conclusion

Uncertainty Could expand successfully to accommodate new countries and grow in strength. After all GDP in the euro-zone is up and conditions look brighter. On the other hand the new countries may not be accepted and the euro will remain as it is. Italy could withdraw leading to chaos and a possible collapse. A quick death is unlikely but the euro could lose and international credibility it has and eventually break up.

Joachim Fels, a senior European economist at Morgan Stanley, warned that the pressure on the euro is growing. He said: "Increasing political and economic divergences imply that somewhere down the road it might all blow up."

[edit]