For decades European states are decisively performing integration policies. They constitute new formulas, they interpret existing theories according to their purpose and they build up necessary institutions on the intergovernmental, and more frequently on supranational levels. Especially after the European Single Act, they accelerated integration programs and related institutions increased in number. Through “One Europe”, there exist an increasing enthusiasm; indeed treaties, pacts and summits are more significant than ever. As they get closer to their ultimate goal, the Europeans take the integration issue more and more seriously.
The EMU, a one step ahead of the
EMS, should be analyzed under such a framework. It is
significantly important in the road through “One Europe” and it matters not
only the region that it is put into practice, but the entire world economy. The
scale and seriousness of the European Monetary Union, the volume and the
prestige of its currency (the Euro) make it different than any other monetary
unions that we have in history (Coppel, 1999; 23-26). Needless to say, it has
political rational in its background, nevertheless it is open to debate whether
the political or economic concerns lead the introduction of Euro, or in other
words the abolishment of national currencies which used to be a symbol of
national sovereignties. Indeed, the money is one of the strong symbols of the
In the EMU subject, the positive and negative sides of the “Euro”, its threats and opportunities necessitate a SWOT analysis, for member national economies that are in or out of the system. Accounting the costs and benefits of such a radical changeover in their economies, national leaders can agree to join in or to stand away from the EMU project. The ongoing affairs of the EU show us that some countries calculate more benefits than losses and decide for integration, while some others, such as the
skeptical against the new currency and the EMU. Especially in the UK , the
euro-skepticism gathers very lively academic and popular debates that in order
to assess the new currency one should scan the British literature for a rich
brainstorming on this issue. Among many other oeuvres, in Both Sides of The
Coin, B. Hune and J. Furder successfully exhibits doubts on Euro and offer
the euro skepticism with all economic, social and political reasons. UK
The defenders of the common currency in the Euro zone are primarily arguing the exchange and transaction costs of the pre-Euro times. Secondly, they argue the reduction of uncertainties in the international trade and FDIs, thus the proliferation trade and economic cooperation in the continent. Thirdly, they trust in the opportunities of the new hard currency in the world economy, as a challenger of the USD in terms of emission volume and prestige. Very consequently, it is thought that in the age of global financialization and monetary speculations, the Euro is trustworthy due to its hardly challengeable reserves and the ECB’s strict defense on the price stability.
Since the early days of the unionization, there is the desire of promoting the free movement of 4 things, namely people, capital, labor and goods. The background reason for such project is to secure unionization from below, in other words the amalgamation of nationalities, goods and capital in the region. To create the European identity among fellow masses, their interactions are vital to burn the ships through pre-1950
where war and real politics were dominating their lives. In order to reduce the
significance of being German, French, Italian or Austrian, rather replacing it
with the “Europeanization”, the national borders and symbols should melt in a
In terms of eliminating exchange costs and difficulties, there are not big differences between individual households and big companies; EMU covers both with equal respects. In the economic transactions, sides are asking either their local currencies or commonly used hard currencies. This is a fact everywhere in the world. This demand causes avoidable costs and reduces the propensity of trading parties. To illustrate the case, before the Euro, let’s imagine a German traveler with 1000 D-Mark in his\her pocket. S\he was doomed to lose his\her money when s\he exchanged it to Italian, then French, then Spanish national currencies. Without any purchase, just via exchanging his\her money to local currencies on his\her destination, s\he would lose 40 to 50% of his\her initial amount of DM. In other words, the traveler’s money would be evaporated by half for only exchange services. Furthermore, for some occasions it was very hard to exchange the currency, even for a high commission level due to physical disabilities, such as non-availability of exchange offices.
For exporter and importer companies, too, the same problem existed before the Euro. They were asking for hard currencies to trade, thus companies of small economies were suffering the shortage of hard currency, such as USD, Yen, Pound and DM. Considering the exchange costs and its wearing effects on the Europe wide economic transactions, the Euro is rightfully expected to accelerate the economic cooperation in the Euro zone.
It is possible to argue for the employment opportunities that exchange offices were providing. Nevertheless, thinking on the unnecessary costs, increased volume and efficiency we can create new employment opportunities via for example public services. Thus the efficiency criterion would resolve this problem with the elimination of multiple European currencies.
The second pro-euro argument is about the uncertainties avoided with a common and stable currency. In the international trade there is always the risk premium for the float of the payment currency, and this make these transactions a kind of risky investment. For instance, in a French-Italian trade partnership, the devaluation of the French Franc or Italian Lira was a risk reducing long term decisions on price making. With the
EMS, the European trade was
taken in security of non-elastic bands which were limiting the fluctuation of
the national currencies against each other. The limited toleration to the
fluctuations constituted a security concern for investors. Thus, the common
currency managed by an “impartial” ECB with a premium concern of price
stability signifies the highest level of certainty and stability in the market.
The EMU, at this point, constitutes a further step of the EMS.
Thirdly, Euro is born into a group of highly developed economies whose synergy created more than their summation. Before the EMU, the DM and the French Franc were among hard currencies of the world economy. They were hardly challenging the USD, but other national currencies such as Italian Lira and Finnish Markka were weak and unpopular in the world trade. The economies of small scale were always subject to hold an important amount of the hard currencies in their reserves to survive. In the total, the Euro is able to challenge the USD and this strength of the new currency can be seen in many aspects.
First of such benefits is the seignorage effect that all hard currencies are supposed to profit. With a very simple reasoning, the hard currency in the market is something highly demanded by worldwide economic actors. In economic transactions, for personal savings and money transfers the Euro is replacing the USD due to its widespread validity and general stability. The demand for Euro increases its purchasing power automatically and people perceive it as a new tool for their investments.
Second benefit of the Euro as a hard currency is comprehensible in the globalization of the finance. Nowadays, there is an increasing tendency of the money wizards to manipulate currencies and to realize incredible gains with daily fluctuations of the money markets. The currency reserves of national governments are easily challengeable by super individuals, such as George Soros who is only the most famous one. These speculators of the globalization age are looking for such crisis and enjoying the instability in small markets.
The UK’s exit from the EMS was a story of this kind. In a day, the British Pound was manipulated and the interest rates quadrupled in a half-day. Through the end of the day, the
economy declared the British exit from the UK EMS,
but until this time speculators, George Soros was one of them, gained an
incredible amount of money. Indeed, the amount lost can be explained as nearly
Pound from every British citizen. Similar stories were repeated in the Turkish
Economy during last decade. Out of the continuous speculations, the interest
rates jumped to unseen levels. UK
The Euro system is securing for every member economies, especially for the small-scale economies, stability and protection from such monetarist speculative attacks due to the huge amount of Euro reserves and its seignorage capacity in all around the world. Indeed, the third benefit of the Euro is related with its importance and prestige in the world economy. As long as people trust in Euro and use it for their investments, savings and transactions the seignorage articulation of the currency is unavoidable. Simply saying, the Euro economies benefit from money printing as its value is stable, and even increasing, in terms of USD Euro parity and general purchasing power of the member economies.
With this framework, the economic benefits of the Euro special to German economy are mostly aroused out of the size and structure of the German industry. Needless to repeat, the German economy constitutes the engine of the union not only in terms of her political spheres of influence but mostly due to her economic giants. She is a leading industrious country, world’s second largest trading nation and third in overall economic performance.