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
sovereignty.
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 UK 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 Europe ,
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
common pot.
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 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
50 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.
