• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

What are the Problems and Possibilities of Economic Monetary Union?

Extracts from this document...

Introduction

What are the Problems and Possibilities of Economic Monetary Union? European Monetary Union (EMU) was first introduced in 1969 at a summit of the European Economic Community in The Hague, the members arranged to endeavour and reduce the fluctuations in their currencies in order to coordinate national policies. 1 (McCormick). Jacques Delores, in 1989 as the president of the Commission decided to introduce a 3 stage plan designed to increase the movement towards EMU, the plan attempts to fix exchange rates and introduce a single currency, the Euro. This plan was not completed until 2002 when the Euro coins and notes began circulating. In order for members of the European Union to join the Euro they were subject to convergence criteria, which confined the levels of government debt and national debt, inflation rates, exchange rates and interest rates the member country is allowed to have. Converging to these criteria and adopting the Euro has provided many different outcomes, some of which are negative and other which will benefit the economies of the member countries. This essay shall examine the problems and possibilities of European Monetary Union in order to determine whether EMU is beneficial to all that have taken part, and to discover where Economic Monetary Union is headed. In order to be part of the Economic Monetary Union, the member countries adopted the Euro as their currency and became part of the Euro Zone. ...read more.

Middle

As there are restricted use of policies such as interest rates, exchange rates and fiscal policies, these economic policies cannot be drawn upon to rescue the economy in times of economic shocks. As this is the case then labour wages and prices have to be used instead. In recent years the "emphasis has shifted to promoting greater flexibility in labour markets and social policies."7 (p175). The EU will have to reform these markets to enable them the flexibility they need for EMU to work. In addition to reforms of the labour and capital markets, the political structure of the EU will have to be amended. Within the EU there are incompatible economies each with their own governing bodies, the EU has a "highly decentralised fiscal policy and even more decentralised political system"8 (p173), without political unification the consequences of EMU will prove extremely difficult for he separate governmental bodies to cope with. Political unification would bring the Eurozone closer to a supranational power as all the decisions involving monetary and fiscal policies would be made at a national level, above the regional governments. This would also reinforce the Eurozone as a greater political power within the world markets. But there is a huge political cost to the member states because if this occurs the member government will be giving up a significant amount of their power. ...read more.

Conclusion

This may cause problems between the member countries themselves when it come to deciding who will join EMU, "The proposed Economic Monetary Union might increase regional disparities that is costly to implement and that it is certain to carry substantial risks, especially in initial stages"14 (p324), this brings up the problems of the implementation costs for any countries wishing to join the EMU, which are substantial for smaller Eastern European countries who are wanting to join the enlarging European Union. There are many positive and negative effects of joining the Economic Monetary Union, which lead to either problems or possibilities for the member countries. Among the problems the most important one to consider when evaluating the EMU is from a political perspective the irreversibility, this is a very costly and uncertain gamble to make when deciding to join the EMU and which needs to be solved before poorer countries can afford to join the larger members. The structure of the labour markets also proves a fairly large problem to the Eurozone as without reforms in these areas the labour market is to inflexible. One of the main possibilities of EMU is the increase in political power the Eurozone will experience, the area within the EMU will be one of the largest single currency areas, and will enjoy all the political benefits from this, The Eurozone will have more influence over larger political power such as America, this has endless possibilities with regards to new policy areas. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Here's what a teacher thought of this essay

4 star(s)

4/5

This essay is informative and well-researched. At my institution (a Russell Group politics department) it would probably receive a 2.1, depending on the syllabus and the level of study).

What prevents this from attaining a better mark is the lack of an overriding structure that facilitates a strong, and internally unified, argument. The points are made in a bit of a scattergun fashion so I didn't get the impression that costs and benefits were particularly well summed against each other.

Indeed, in many cases the good and bad facets of EMU's design are paradoxical aspects of each other, particularly if the political consideration of who benefits is taken into account. The author touches upon these kinds of ideas, but foregrounding them would provide a stronger framework for the author's research and arguments.

Marked by teacher Grace Thomas 26/03/2012

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Macroeconomics essays

  1. Is inflation always and everywhere a monetary phenomenon?

    The effect of an increase in the money supply, in the long-run, is to increase prices, and increase interest rates with no effect on output. The increase in prices is proportionately the same as the initial increase in the money supply. The term for this argument is long-run money neutrality.

  2. Explain the concept of Price Elasticity of Demand and discuss its relevance for Business ...

    It is easy to point out these two extreme elasticities, a perfectly price elastic demand is represented on a graph as a horizontal linear line and perfectly price inelastic demand as a vertical linear line. In the situation of a perfectly elastic demand, any change in price will result in

  1. What is the relationship between money supply and inflation?

    Finally the Central Bank (Bank of England) can control the assets of banks and the amount of lending they can make. Banks can also restrict the amount of money they give out by imposing a rule of a minimum reserve ratio.

  2. Discuss the bread industry in Malaysia - growth, revenue and pricing.

    For example High 5 (under Stanson Bakeries) launched Sure Value 500 bread loaf sells at RM2.25 for 22 slices compare to Gardenia normal size white bread cost RM 2.30 . (Sivanandam.H,2009) The main intention is to help their firm from achieving a significant market share in the sandwich bread segment.

  1. Explain the main instruments of macro economic policy - Fiscal Policy

    This will raise people's disposable income(their take home pay) and therefore encourage them to spend more. Either way the level of demand in the economy should rise and help encourage economic growth Reflatioary policies could therefore include; * Cutting the lower, basic or higher rate of income tax * Increasing the level of personal allowances * Increasing the level

  2. Explain the causes of inflation.

    This causes the SRAS curve to shift inwards raising prices but decreasing output when firms do experience an increase in the cost of production, it will naturally went to pass these costs onto the consumer so are forced to raise prices.

  1. The worst economic problems in Kuwait

    Another important implication of the high prices of land and real estate is inflation. This is because of the high rent prices which pushes suppliers of goods and services to raise prices in order to cover the costs and make profit.

  2. Compare and contrast New Classical and New Keynesian theories of Business cycle

    NCM promotes non-activism over activism with respect to stabilisation policy. An example of this is the UK's monetary policy committee, it changes interest rates with the intention of controlling inflation, markets then react to accommodate this. In 2004 steady increases in interest rates has curbed inflationary pressure from consumer spending and housing market.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work