123 School Work

benefits of EMU outweigh the costs

• This is a preview of the essay.
  To view the full text you must login!
  
  1 First part: introduction background
  
  The creation of the Economic and Monetary Union marks the culmination of decades of movement toward European economic integration. In 1951, Belgium, France, Germany, Italy, Luxembourg, and the Netherlands formed the European Coal and Steel Community, creating a common market for coal and steel. In 1957, the same six countries signed the Treaty of Rome, creating the European Economic Community (EEC), or Common Market. (Ireland, Denmark, and the United Kingdom joined in 1972.) The Werner Report, which proposed a European monetary union, was adopted by the heads of state of the EEC members in 1971. In 1979, the nine EEC members formed the European Monetary System, and eight of the countries agreed to maintain the foreign exchange value of their currencies within a stipulated range against the currencies of the other members; the ninth country, the United Kingdom, joined the agreement in 1990. The Maastricht Treaty of 1992 set a timetable for the creation of the EMU, as well as limits on inflation rates, interest rate levels, government deficits, and government debt that countries had to meet in order to join the Union.
  
  
  
  
  2nd part: The benefit of EMU
  
  The benefits could outlined in ten aspects below
       Price transparency
       Increased efficiency C no need to plan for exchange rate fluctuations C especially for importers who would have to bare hedging costs
       Reduced transaction costs
       No need to have foreign currency reserves for central banks C no separate currency to protect
       Exchange rate stability C international firms pricing, investment, export markets
       Reduced interest rates
       Increased policy credibility because devaluation is not possible
       Less uncertainty from moral hazard, adverse selection due to overly high or low interest rates
       Increased growth especially endogenous growth
       Firms: all the benefits reduce costs for firms & thus increase their competitiveness
  Consumers: receive a welfare increase from increase consumer surplus from the lower prices & reduced uncertainty
  The main perceived benefits
  The most obvious benefit of the common currency is that it reduces the cost and difficulty of completing international transactions within the EMU. For example, a German importer of French wine will no longer have to convert German marks into French francs in order to pay for the wine; both the importer and the French wine company will be using the euro. Thus, the cost of conducting transactions will be reduced, and the savings can be passed along to consumers in the form of lower prices...