| Euro in the European Economy Essay
The introduction of the euro currency in the European Unions member states was perceived as a great step. It was distinguished as a major success because of its numerous benefits to the European integration. Since 1999, the European Union member states have been adopting the euro currency. The old national currencies, such as the Deutschmark, were replaced and identified as the sub-units of the euro currency. The euro currency was not adopted by all the European Union member states. Some countries such as Denmark and the United Kingdom declined the treaty and were exempted from participation. The new countries, such as Sweden, that joined the European Union are yet to receive the condition for adopting the euro currency. The European member states are part of the formed economic and monetary union that facilitates economic integration based on a single market. The union facilitates the coordination of the economy and fiscal policies, and the member states countries fulfilling particular conditions.
Over the years, the European countries have discovered the importance of intense monetary and economic cooperation for the development of the internal market. The European countries developed an independent European Central Bank that became responsible for the monetary policy that governed the Euro. It was also developed for the national central banks of the States that used the euro thus composing the euro system. The euro is the major currency used by the largest population in the 17 euro-area states. This currency is also used by other countries, especially the colonies and neighboring countries for practical purposes (The Economist, 2012).
Economically, the euro currency has also become one of the most significant currencies internationally. It is perceived as the second most valuable currency globally after the dollar currency. The euro currency is being used as a single currency in the euro zone countries. The single currency is expected to create favorable political and economic sense. On the other hand, the single currency has made travel transactions easier. The structure of the euro currency is effectively managed in order to gain stability, experience minimum interest and inflation rates, and promote public finances. The single currency complements the single market and improves its efficiency. Moreover, the single currency within the euro zone has increased cost transparency, boosted the European economy and developed international trade. The strength of the euro currency is expected to protect the European countries from the peripheral economic shocks such as instability in the currency markets.
The euro currency is also significant, because it has granted the European citizens a corporeal symbol of their nationality (Ewing, 2012). The currency symbolizes their European identity, which makes them significantly proud of their country. They believe that the euro currency has the potential to increase certain privileges for the current members of the European Union member state. In the recent economy studies, the euro currency was discovered to be falling due to the economic crisis in Europe. Most of economists suggest that the currency is headed for a great decline due to the governments debt crisis. The decline of the euro will decrease Europeans procuring power for the imports. Economists believe that if the decline is gradual, the fall in euros exchange rate would aid exports and offer a boost in Europes distressed economy. The European region is caught up in the economic crisis due to the high debt predicament.
In the entire European region, the euro currency is in recession though in some countries the situation is severe. The export-focused firms should be highly competitive on cost outside the euro zone thus improving the countries income to evade economic recession. The southern countries in Europe seem to be highly affected by economic recession. Such European countries like Greece and Portugal have a significant decline in the GDP percentage in the recent years. Other European countries such as German portray the ability of minimally recovering from the recession. The unemployment rate in the European States is very high. Majority of young people, especially in Greece and Spain, are jobless thus exacting a dreadful social cost. The high population of the unemployed also shows a great economic recession in the euro zone. The government debt in the European States such as Greece, Ireland, Portugal and Italy was more that 100% of the GDP. The euro-area countries have also experienced significant budget discrepancies that have caused a great impact on the economy. Other European countries such as Britain that are not part of the single-currency zone governed by the euro currency do not experience severe economic recession. These countries are affected by the economic recession of the euro-area countries through trading and other financial links. The fact that the euro zone is plunging into recession clearly shows a shrinking economy in Europe.
The great economic recession in the euro zone has been under way for several years (Ewing, 2012). Current economy studies state that the European countries experiencing severe recession could be in a period of destructive stagnation. The lost economic potential could have negative long-term effects on European citizens. However, economists suggest that a weaker euro would contribute to the revival of the European economy. In an instance, a lower euro would aid European countries purchase more exports to other foreign countries. Countries such as Italy would vend numerous shoes and textiles to other countries. The exportation of goods in the European countries has highly lifted their economy. Exportation industry has lifted Europe from recession because of the lowered value of the euro. The rate of exportation in the euro zone rose to high levels thus improving the economic output. Economists state that the negative occurrences in Europe such as the debt crisis have continually put the currency under pressure (The Economist, 2012).
In order to lift European economy, an undervalued euro currency would be very significant. Clearly, weakening of the euro currency is a part of a major strategy to revive the economy of the European member states. Certain economists state that European countries would find it challenging to convince other people, especially investors, on economic growth amidst the recession. Most of investors are increasing sharing the opinion that is highly difficult to revive the economies to expansion. Rationally, investors are never ready to deal with currency within economies that are economically unstable. Majority of the economists believe that economic recession is characterized by factors such as high rate of unemployment, investments and industrial production.
According to a research organization in London, the euro zone area recuperated from the economic recession after the second quarter of 2009 and began to develop again. Certain economists argue that European countries suffered from the self-inflicted debt predicament and have recently begun to prosper economically. The euro currency is expected to portray the future of European economy. Also, it is expected to overcome the economic recession, because it has a great financial potential. Internationally, there are certain indicators that portray the euro nations as sturdy states. The economic strength of the euro currency grants European countries the opportunity to act as net creditor to foreign countries. These countries also highly benefit from international trades. According to the economists, euro currency has the capability to turn into the second reserve currency for the globes financial system (The Economist, 2012).
Currently, the dollar currency has widely been accepted as a reserve currency. The euro currency will take quite a while so as to be recognized as a reserve currency like the dollar. Globally, people are not purely convinced of the success of a single economy, upon which the euro currency is based. The euro currency is expected to highly fuel the economic growth of European countries. People are not fully convinced whether the euro currency will underpin severe macroeconomic policies that have caused high levels of unemployment or facilitate significant European economic growth. The euro currency does not only have an impact on European countries but also on the world. Gradual economic growth of Europe may cause global economic crisis. In Europe, the European Central Bank maintains interest rates higher than expected in order to sustain reliability and maintain the investors trust in the euro. Moreover, the European Central Bank maintains secrecy of their transactions from the investors, but it raises questions about the stability of the euro.
European trade balance is impaired by an economic fall of the dollar against the euro currency. European organizations are not capable of expanding on the basis of domestic sales due to the long years of slow economic growth. Therefore, the unemployment rate elevates and employees are obliged to accept minimum wages in order to maintain competitiveness. As earlier stated, the euro currency is one of the most used currencies internationally. The euro system that encapsulates the European Central Bank and national central banks of European countries is driven by basic principles. It is believed that the globalization of the euro currency is solely market driven. Therefore, the euro system assumes a neutral position. On the other hand, the euro system strives at sustaining price stability as its major goal despite the repercussions of the global role of the euro for domestic economic policy (Ewing, 2012).
Maintaining price stability is a major precondition for a currency to assume a global role. The euro system is always determined to maintain price stability in order to globally sustain the credibility of the euro. Stability of the euro currency is a significant requirement for the foreign investors to gain confidence that their purchasing strength will be conserved for a prolonged period. Price instability within countries would be one of the factors that would create exchange rate and asset price precariousness. The euro currency in European countries is very significant in the business community for developing investments. Still, the currency is employed for financing currency in the international financial system. It has a great impact on the global market. The euro currency has also played a major role in the integration process in Africa and Europe. Still, the euro currency may play the role of integration amid Europe and other countries globally. The euro currency has a significant impact on the economic growth of the euro zone countries. The economy of these countries contributes greatly to the global economic growth (The Economist, 2012).
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