The European Monetary Union (EMU) - The Euro as a Single Currency Essay

The European Monetary Union (EMU) - The Euro as a Single Currency Liberalizing trade is nothing new to the world, but we have never witnessed such a vast economic integration between sovereign countries like the integration carried out in the European Union. Customs duties between European countries started to come down steadily in the early 1950s and were abolished in 1968 with the introduction of a customs union and the implementation of the common external tariff. The official proclamation of the single market on 1 January 1993 marked the ending of non-tariff barriers to trade between Member States. European Monetary Union will make it possible to complete European economic integration. The introduction of a single currency will mean price transparency, that is prices of goods can be directly compared on the markets of the participating Member States, which will merge into one market. Obstacles to trade such as the transaction costs, which add up to 0.4% of the EU GDP per year, and the exchange risk, will be eliminated. The competitive positions of companies can no longer be established by exchange-rate movements but will reflect productivity, inflation and cost differentials. This should permit a better allocation of capital and of available resources. The member countries will also be able to save administrative costs used for hedging operations. Over and above its positive effects on price stability and public finances, the single currency will make it possible to complete the single market and increase the benefits, which have already flowed from it. Monetary Union will create an area within which national financial markets will become an integrated, wider and more flexible market. Financial institutions and financial centers will face new competitive conditions. The size of a specific national market will lose its significance. Competition will increase and could lead to greater harmonization across the euro area. The introduction of the euro will have a great impact on the financial sector. This is because of three main reasons: Â · The European System of Central Banks will be operating the single monetary policy in euro. So, it will be necessary for financial institutions to be able to operate in euro. Â · Governments will issue all new debt in euro. Therefore, financial institutions, payment systems and clearing ... ...ch the problems associated with the changeover to the euro will be resolved. Second, the national currencies of the EMU members are no longer independent. They are fixed to the euro. A speculation between currencies of the member states is pointless because this is equal to speculation with a currency of the same type. The introduction of the euro in 1999 was an event, anticipated for a long time. Following, the euro has faced some problems due to the transaction period, but there is a strong belief that these problems will be easily overcome as the young currency accumulates power. Now that, the euro has become the official currency of the European Union (with some exceptions) there will be no more national currencies of the member states. In this way, we become witnesses of the highest level of integration among independent nations in the world history, when the European Union is expected to become the leader in the world economy. Bibliography: 1. Kreinin, International Economics, 1991, Harcourt Brace Jovanovich 2. Cecchini, The European Challenge, 1992, Wildwood House 3. European Central Bank’s web site: http://www.ecb.int 4. EMU official web site: http://www.emu.int