• 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. Marked by a teacher

    Factors Which Effect Interest Rate Developments Within The United Kingdom

    3 star(s)

    [http://bss.sfsu.edu] In reality, the Bank of England's determination of the official interest rate is obviously a far more complex matter, taking into account many factors, such as house prices, consumer spending, exchange rates and most importantly inflation. The Bank of England's ability to set interest rates is one of

  2. Is inflation always and everywhere a monetary phenomenon?

    The term for this argument is long-run money neutrality. Friedman's argument was in response to Keynes and is a development of the quantity theory of money which attempts to explain the relationship between money and inflation. The original quantity theory had two key assumptions. First, money and inflation increase proportionately, and second, the relationship between money growth, and output growth and velocity must be orthogonal i.e.

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

    for small firms such as green grocers and small businesses trying to start up. Again this will result in less investment and a lower level of demand from consumers as credit will be harder to come by. But this will however reduce inflation, which at the moment is roughly 2.23%.

  2. Explain how monetary policy works under an inflation targeting regime

    While monetary policy decisions have an effect on the economy with a time lag, central banks have power over the future inflation rather than the current inflation. As an outcome of this aim, they develop inflation forecasts regularly and publish them.

  1. The current economic crisis has resulted in a recession. Discuss, taking account of ...

    [6] The movement will focus on low-income parents, increasing their benefits and tax credits. By giving money to the poorer section of the population, it gives them money to spend on things that they would otherwise do without, meaning that money is plumbed back into the economy.

  2. Can Economist Predict House Price Movements

    House prices are much higher when they are closer to the city than those of which are located in the outer skirts. Reason being is that, majority of jobs are located in the city and there would be less time to commute to work, therefore demand for housing in the

  1. Fiscal policy is powerful while monetary policy is weak. Discuss.

    This rarely occurs and if it does the process takes a very long time {Lipsey R.G. and Chrystal K.A. (1999)}. However if a government loosens fiscal policy this will shift the Aggregate demand curve to the right, the multiplyer can increase the effect of this loosening in fiscal policy.

  2. Youth unemployment and economic growth. Portugal

    and Duarte, C. 2010). These caused social exclusion, inequality and lack of motivation to employment among youth, making them more reliant on the benefits system. One more cause within the youth unemployment area is that those youths who achieved higher education were not given job opportunities fit for their skills.

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