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Discuss the extent to which membership of the Euro zone is beneficial to an individual country's macroeconomic performance.

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Introduction

Discuss the extent to which membership of the Euro zone is beneficial to an individual country's macroeconomic performance (20) The eurozone is a region in which all countries are operating at the same currency, the Euro. Membership for the Eurozone can be beneficial to a country macro economics perspective to an extent. It will reduce transaction costs, this would mean that there are no costs for converting currencies; therefore this will benefit Tourists as they will be getting a higher return on the money they wish to convert. Also benefit businesses who trade in the eurozone as it eliminates Exchange rate uncertainty, as the exchange rate fluctuations will not be able to affect firms profit margin ratios, this will in the long run lead to greater confidence for businesses and lead to greater trade increasing a countries balance of payments position. ...read more.

Middle

And the ECB aim is to keep inflation low as it will help countries have a low inflation rate. Operating the same currency can benefit a countries foreign direct investment, as I mentioned earlier traction cost will be reduced. Therefore it could lead to a better position in a countries balance of payments. It will also help a countries increase it's economic sovereignty within the eurozone and other nations due to the increase in power it will receive from being in a single currency, as other nations will see potential in a larger market. Many sectors in the economy will benefit such as the financial sector, as it will be easier to trade shares on the stock market, as it will be easier to trade German shares on the London stock exchange. ...read more.

Conclusion

A significant disadvantage of joining the euro is that it will mean that countries lose Macroeconomic sovereignty, as countries will not be able to set interest rates and also exchange rates, however you could argue this will benefit some nations who experience high inflation rates. To conclude membership of the euro will bring many benefits, and disagreements. However I recommend that in the near future we do have a single currency proving many countries are operating at similar stages within the economic cycle. As the single currency should increase FDI, and improve BOP position, however in order for this to occur countries need to be operating at similar stages in terms of the economic cycle. It should also increase a countries economic influence in the world which should decrease volatility of the euro and in the long term lead to greater external trade ...read more.

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