Implementation of The Euro

Sarah Cullen & Jade MurrayN00128078 & N00122458

In this presentation...

• We are going to discuss 6 reasons for the implementation of a single currency.

• We are then going to discuss one disadvantage of a Single Currency area.

• We are going to use The Euro as our example.

Elimination of exchange rate fluctuation

• The Euro has eliminated the damaging effects of exchange rate tensions within Europe. In terms of growth and employment the Euro has eliminated shocks which were often costly in the past.

• It has also enhanced the prospect and eliminated the cautions of trade and investment within the countries in Europe.

http://ec.europa.eu/economy_finance/publications/publication7309_en.pdf

http://library.thinkquest.org/19110/english/advantag/index.html

ERM• The ERM (Exchange Rate Mechanism) was

set up to regulate the exchange between different trading countries within Europe.

• The ERM II set up in January 1999 was the revision of the ERM.

• This provided the frame work to manage the exchange rates between EMU (European Monetary Union) and non participating member states to ensure stability.

http://ec.europa.eu/economy_finance/euro/adoption/erm2/index_en.htm

Price Transparency • Price transparency is being able to tell easily

if a price in one country is better than the price in another, this is beneficial for both consumers and businesses.

• With price equalisation across boarders businesses have to be more competitive.

• Prices still vary but consumers can easily spot a good deal.

http://www.howstuffworks.com/euro10.htm

• We used BMW as our example. We found that a brand new 1 series is €22,700 in Germany and €22,995 is Ireland.

• With the use of price transparency it is easy for consumers to find the best deal within trading countries.

www.google.ie

www.bmw.com

www.frankkeane.ie

Transaction Cost

• Since the Euro has been introduced transaction costs have been eliminated within Euroland countries.

• It has been particularly helpful to tourists and others who cross several boarders whereas before they had to pay to exchange their money.

http://www.howstuffworks.com/euro10.htm

The removal of transaction costs benefitted:

• There are no longer any costs arising from buying and selling foreign currencies on the foreign exchange markets.

• It protects against adverse exchange rate movements.

• There are no longer any costs for cross-border payments in foreign countries which entailed high fees.

• There is no longer any need to keep several currency accounts.

http://www.ecb.europa.eu/ecb/educational/facts/euint/html/ei_007.en.html

Increased cross-border employment

• People are now more employable across borders.

• With a single currency it eliminates difficulty for people to cross into the next country for work as their salary would be paid in the same currency.

http://www.howstuffworks.com/euro10.htm

• Under the EC (European Commissioner) Treaty individuals are entitled to move freely for work reasons from one EU Member State to another.

• Cross-border workers are people who work in one EU state but live in another.

• Organisations of all sizes are taking advantage of the increasing ease with which human capital can be shared across borders.

• Cross-border workers usually work in a different Euroland country during the week and return to their home country at the weekends.

http://ec.europa.eu/taxation_customs/taxation/personal_tax/crossborder_workers/ http://www.fullerllp.com/index.php/services/tax/cross-border-employment

Expanding markets for business

• Due to the implementation of The Euro businesses can now expand more easily into neighbouring countries.

• It is no longer necessary to set up different accounting systems, banks, etc. if the same currency is being used.

• Businesses benefit greatly from the introduction of The Euro as their customer base is largely increased.

• An example of this is online shopping.http://www.howstuffworks.com/euro10.htm

Macroeconomic Stability

• Because of the European Central Bank (ECB), the introduction of The Euro also helps to lower and control inflation among EU countries.

• Low level of inflation are what make economies stable.

• High inflation rates are generally viewed as undesirable and cause less investments to be made.

http://orderflowforex.com/2011/07/disadvantages-of-the-euro/

• When inflation is controlled among these countries it encourages investment and therefor leads to growth of economies within the Euroland.

www.google.ie

Disadvantage of The Euro• The formulation of The Euro has abolished

independent monetary policies for every country within The Euroland. When each country had their own currency if they ran into economic trouble that country could then slash their interest rates and could also devalue their currency.

• This process could be done by The Central Banks or the market would do so itself if recession was brewing and lower interest rates were apparent.

http://orderflowforex.com/2011/07/disadvantages-of-the-euro/

• Being able to slash interest rates and devaluing a currency are powerful recession fighting tools which the countries of The Euroland have lost out on.

• In respect to this disadvantage it could be considered a smart move by Britain to retain an independent currency as the economic recession has not effected Britain as dramatically.

http://orderflowforex.com/2011/07/disadvantages-of-the-euro/

Reference Page• http://ec.europa.eu/economy_finance/publications/

publication7309_en.pdf

• http://library.thinkquest.org/19110/english/advantag/index.html

• http://ec.europa.eu/economy_finance/euro/adoption/erm2/index_en.htm

• http://www.howstuffworks.com/euro10.htm

• http://www.ecb.europa.eu/ecb/educational/facts/euint/html/ei_007.en.html

• http://ec.europa.eu/taxation_customs/taxation/personal_tax/crossborder_workers/

• http://orderflowforex.com/2011/07/disadvantages-of-the-euro/

• http://www.fullerllp.com/index.php/services/tax/cross-border-employment