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Explain the significance of 'Euroland' on the world economy

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Introduction

Bernice Berschader The Euro (a) With reference to the first paragraph, explain the significance of 'Euroland' on the world economy. The article refers to the 'Euroland' in the first paragraph. The 'Euroland' refers to the group of 11 countries which have adopted the euro. This region makes up for 19% of the world domestic product or world output. This high GDP of the countries within the EU takes into account the output of foreign firms within the Europeans Union yet it does not include the output of EU firms located beyond the barriers of the EU. A high GDP is necessary for regions to achieve economic growth and have high living standards, which has materialised in the EU. (b)(i) Examine the factors which might explain that prices "varied on average by 24% (line 19 - 20) within the euro area. According to the article the price variations are justified in the article as a result of differences in VAT and other taxes across the Euro-zone as well as the differences in pricing strategies of the firms. However, the intention of implementing a price transparency which will cause consumers to be more aware of the price differences, this will result in pressure being placed on producers to have same euro prices with the implementation of a common European currency. ...read more.

Middle

However, this will have trade off effect. A depreciation will discourage speculative 'hot money' being invested into the wealthier countries for they look for the highest rate of interest on savings. The implementation of the Euro will cause the member countries to join the euro it would share a common interest rates with its fellow EU members who have also adopted the euro, as a result 'hot money' will no longer be attracted. As a result the autonomy of the Banks in each country will be abolished over the setting of the interest rates, the European central Bank sets interest rates for all EU countries who have adopted the euro. (c) Analyse the implications for location decisions by businesses of Britain remaining outside the euro zone. The article argues that British businesses which will decide to remain outside the Euro-zone will have to face a number of issues. British businesses are likely to lose jobs, increasing unemployment in Britain doe many jobs will be transferred to the Continent. However, on the other hand it is expected that unemployment will also increase in the EU zone. The reason British firms outside the EU may suffer is due to them experiencing a 'competitive disadvantage'. ...read more.

Conclusion

Also due to the pound being of greater value that the euro, an adoption of the common European currency in Britain would benefit firms who heavily rely on exports. The abolition of Sterling is likely to lead to a depreciation making UK goods more competitive on the international market. However, this will hava trade off effect. A depreciation will discourage speculative 'hot money' being invested into the UK economy for they look for the highest rate of interest on savings. If the UK were to join the euro it would share a common interest rates with its fellow EU members who have also adopted the euro, as a result 'hot money' will no longer be attracted. As a result the Bank of England will lose its autonomy over the setting of the interest rates, the European central Bank sets interest rates for all EU countries who have adopted the euro. If the UK were to join the euro it would also be committed to a single fixed exchange rate within the Euro-zone which would make trade easier and less time consuming and no longer prone to price fluctuations, firms would no longer have to sell and buy currencies on the foreign currency market. It is important to take into account however that the Euro can fluctuate with currencies outside this zone such as the US Dollar or the Japanese Yen. ...read more.

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