Advantages and Disadvantages of the EURO
Advantages and Disadvantages of the EURO -Business-, Consumer- and Public Sector perspective
©2015
Abstract
24 Pages
Summary
This Assignment with the topic “Which arguments are in favour respectively against joining the Eurozone from a countries perspective?” was created in the first semester “economy” module to obtain the „Master of Business Administration“. The Euro can`t be evaluated inde-pendently from the EU, therefore, at first, this document gives basic information by explain-ing and defining the European Union (EU) and the Euro. The second part shows, instead, the advantages and disadvantages from certain perspectives. Finally it gives a summarising statement and an outlook for the future.
Excerpt
Table Of Contents
Jörn, Axel: Advantages and Disadvantages of the EURO: Advantages and Disadvantages
of the EURO -Business-, Consumer- and Public Sector perspective, Hamburg,
Anchor Academic Publishing 2015
PDF-eBook-ISBN: 978-3-95489-899-2
Druck/Herstellung: Anchor Academic Publishing, Hamburg, 2015
Additionally: FOM Hochschule für Oekonomie und Manage, Essen, Deutschland, 2015
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Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen
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Bibliographical Information of the German National Library:
The German National Library lists this publication in the German National Bibliography.
Detailed bibliographic data can be found at: http://dnb.d-nb.de
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Contents
Contents ... I
List of figures ... II
List of abbreviations ... II
1
Introduction ... 1
1.1
Task of assignment ... 1
1.2
Basic information ... 1
1.3
How does the EU work ... 1
1.4
History of monetary unions ... 2
1.5
The Euro () ... 2
2
Advantages of the Euro ... 4
2.1
Consumer benefits ... 4
2.2
Business benefits ... 6
2.3
Benefits of economic stability and growth for public sector ... 6
3
Disadvantages of the Euro... 7
4
Summary and outlook ... 11
List of references ...
12
List of internet references ...
12
Declaration in lieu of oath ...
.17
I
List of figures
Figure 1: The number of banknotes in the years from 2002 until 2013 in (billon ) ... 3
Figure 2: Development of the value of the in the years from 2002 until 2013 in (billon ) ... 3
Figure 3: Inflation convergence in the Euro area, annual % increase in customer prices ... 5
Figure 4: Bank interest rates and loans for households (monthly rate in %) ... 5
Figure 5: Account deficits and competitiveness ... 10
Figure 6: Inflation divergence after crises ... 12
Figure 7: Bank interest rate divergence after crises ... 13
List of abbreviations
EU
European Union
GDP
Gross Domestic Product
ECB
European Central Bank
DM
Deutsche
Mark
II
1
Introduction
1.1
Task of assignment
This Assignment with the topic "Which arguments are in favour respectively against joining
the Eurozone from a countries perspective?" was created in the first semester "economy"
module to obtain the ,,Master of Business Administration". The Euro can`t be evaluated inde-
pendently from the EU, therefore, at first, this document gives basic information by explain-
ing and defining the European Union (EU) and the Euro. The second part shows, instead, the
advantages and disadvantages from certain perspectives. Finally it gives a summarising
statement and an outlook for the future.
1.2
Basic information
Today the EU consists of 28 countries. Additionally there are six candidate countries and two
potential candidates. The EU has 506.7 million inhabitants in 2013 and it is the world's third
largest population. Each EU country is different in terms of gross domestic product (GDP),
population growth, education, culture and political system. The EU economy is growing by
investing in transport, energy and research. It produced a total GDP of 17, 35 trillion USD in
2013.
1
The EU contributes 20% of the global exports and imports, in spite of consisting of 7%
of the world's population. Around 2/3 of the EU countries trade is done with other EU coun-
tries. With 16.4% in 2011 the EU is the largest player of global import and export. "United in
diversity" is the motto of the EU. It symbolises how Europeans have come together and how
the countries work for peace and prosperity, while at the same time being enriched by the dif-
ferent cultures, traditions and languages.
2
1.3
How does the EU work
After the Second World War, the EU was created to convey economic cooperation and trade
between the member states and to avoid conflicts as result of their increasing interdependen-
cy. With the time, the purely economic union has evolved into an organisation spanning poli-
cy areas, from development aid to environment. As everything is based on contracts, voluntar-
ily and democratically agreed by all members, the EU is based on the rule of law and sets out
1
Rf.: WB (2014)
2
Rf.: EU (2014)
1
the goals in many areas of activity. People can freely travel throughout the continent. And it
became much easier for the EU citizen to live and work in another EU member state. There is
a free move of people, goods and services in a single EU internal market. This leads to falling
prices. For example the prices for flights (40%) and mobile communication (70%) have de-
creased.
3
A main goal of the EU is to promote human rights, freedom, democracy, equality
and the rule of law.
4
To enter the EU a country needs to fulfil several requirements such as
geographical, cultural ones and additionally it must fit into the community of value.
5
The EU
achieved peace and prosperity and helped raise living standards and a monetary unity (the
Euro).
6
To adopt the Euro the member states need to fulfil the five contingency criteria.
1.4
History of monetary unions
The first monetary union was created in the 6
th
century BC, less than 200 years after the intro-
duction of coinage. Greek cities found inconvenient to share their different mints with other
cities. Another example is the union between the cities of Asia and Persia around 500 BC. In
the 19
th
century there were the multinational monetary union of the U.S. and the national un-
ions of Italy and Germany which were closely constrained with nation building and central
banks being created after national unification. "Monetary unions serve on a path of transition
from the creation of the national state to the introduction of a unified currency."
7
This few
examples are already proving that a monetary union is useful and necessary to expand the
economy and to build and integrate a community or nation independently from any advantage
and disadvantages.
1.5
The Euro ()
Today 332 Million European uses the Euro every day. This is the most tangible prove of the
collaboration of the EU countries.
8
The European council made the decision for an economic
and fiscal policy in December 1991 in Maastricht. The economic and monetary union was
deployed on the 1
st
of January 1999. On this day the exchange rate between the and the cur-
rencies of the member countries were defined. The European Cantal Bank (ECB) took over
3
Rf.: EKBD (2014)
4
Rf.: EU (2014)
5
Rf.: Wagener, Hans-Jürgen (2009), page 6-13
6
Rf.: EUFE (2014)
7
Rf.: Rieter, Heinz (2009), page74
8
Rf.: EUG (2014)
2
the treatment and accomplishment of a consistent currency and cash politic. Its main goal is to
maintain price stability by defining several key interest rates for the Euro area. On the 1
st
of
January 2002 the Euro banknotes and coins were introduced. The national currencies lost their
validity as instrument of payment on the 30st of June 2002.
9
This monetary union was a very
important step in the economic integration of the EU. Another important aspect of the integra-
tion was a streamlined tax-, economic and currency policy. From the 28 EU member states,
19 implemented the Euro as an instrument for payment. Accession countries are committed to
adopt the . They are not allowed to be members of the EU and to retain their own currency.
At present nations like Great Britain, Sweden... has an exaptation. The question is not if they
will join, but are how they make the transition and when they will join.
10
The following graph
pictures the number of banknotes in the years going from its introduction in 2002 until 2013
in billon . The second shows the value of the Euro in the years from 2002 until 2013.
Figure 1: The number of banknotes in the years from 2002 until 2013 in (billon )
11
Figure 2: Development of the value of the in the years from 2002 until 2013 in (billon )
12
9
Rf.: Paape, Björn (2014), page 81-82
10
Rf.: Rieter, Heinz (2009), page72 and WWE (2014), page 4 taking into account (Lithuania joining Jan 2015)
11
RTE (2014)
3
The Euro itself doesn't bring any economic stability or growth. This will be achieved through
stabile distribution of economic boom according to the guidelines of the stability- and growth
contract as the most important elements of the economy- and currency union. Additionally,
the Euro is the key mechanism for the increasing advances of the domestic market, the trade
policy and the political collaboration. It is an integrative part of the economic, social and po-
litical structures of the current EU.
13
2
Advantages of the Euro
In general, the advantages of adapting the Euro and their dedicated root causes are determin-
ing themselves. For example, a benefit for the consumer and for the citizens can be also an
advantage for a business as well as a plus for the public sector (government) at the end impact
citizens and consumers in a positive way. Yet this assignment distinguishes between consum-
er- and business- benefits and the surplus for the public sector coming from the enhanced sta-
bility and growth.
2.1
Consumer benefits
An obvious advantage of the Euro is the disappearance of the high dues that finance institu-
tions charge when one country buys or sells other currencies. In total the saving of a country
can be rated of about 0,2% of the GDP of a state of the currency union.
There is as well an advantage coming from the mitigation of risks due to direct investigations
in other states of the monetary union. To reduce exchange rate risk a company should produce
in the country of its main sales market. The consequence would be a spreading of the produc-
tion sites and a waste of economies of scale. Hence the Euro improves efficiency of compa-
nies and allows them to sell their goods cheaper to the customers.
Another effect would be the positive impact on the interest rate, which is dependent on the
decreasing exchange rate risk. Consequently this leads to an improvement of the financing
conditions and investments and to an increase of the quotation of investment. Furthermore the
Euro controls and holds down inflation. In the 1970 and 80`s many EU countries had very
high inflation rates (about 20%). After the introduction the rate went down to 2% in the Euro
12
RTE (2014)
13
Rf.: GFDE (2014)
4
