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Five years ago, the biggest thing in economic and international news was the introduction of the new European currency, the Euro, into circulation and into the pockets of the consumers of the participating countries within the European Monetary Union. In an attempt to unite Europe and to form a dominant currency to rival the US dollar, Europe locked their exchange rates and went full steam with this plan. Unfortunately, for many of the European countries, what seemed to be the end all for European economics, quickly unraveled the inherent reality of the fundamental macroeconomic flaws in the European monetary system that may cause its downfall and deficit policy that could lead to its utter collapse. Even with this in mind, some speculate that, with the right amount of revision and monitoring, the Euro might actually have a chance of becoming the worlds leading currency. In any cases, however, before looking this far into the future, we must first remember the past.
With around 500 million populations among its member nations, EU stands as one of the largest union with the aim of ensuring free movement of people, goods, services and capital. The staggering number of people using one standard monetary value; the Euro, showcases the impact and influence EU has in the global market scenario. The dissolving political and economic boundaries between the European Union nations sparked the argument that EU was taking over the U.S. as the top economy of the world. However, the reality struck in an opposite way. With economic and political powerhouse like Germany, UK as its members, several other EU member countries continuously kept on piling up the debts for their own use. With low interest rate and the powerful influence and creditworthiness of big-name European countries, the loans kept on flowing. The spending far out-weighted the financial capabilities of some of the European Nations; resulting in the faultiness of the whole EU as an organization and union. And when the debts could not be paid back, it resulted in crisis for the whole union.
The Maastricht Treaty is the most recent step towards uniting Europe into a political and economic European union (EU). For decades, Europeans have been gradually moving towards a united Europe in order to increase economic efficiency. While this appears to be a relatively easy idea on the surface, it is far more complex than one could expect. Many countries stand to gain and others stand to lose if a monetary union (MU) takes place. In addition to the many economic issues, any analysis of a monetary union is complicated greatly by the critical political and personal objectives of the politicians that are working to integrate Europe.
The movement towards the European Monetary Union and the creation of the euro lasted many years, complete with key personalities and major governmental treaties. When finally organized and implemented, it lead to a historical event that will forever change international economics. Of course with a change this tremendous comes the good and the bad, but if the economic welfare of the people is improved, everything was worth all the hassle.
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Even before World War II, the dream of a unified Europe existed. This ideal emerged from the desire to guarantee peace, for a common political and economic system would, in theory, lower the chances of war. This is because by slowly erasing countries’ borders and making them intra-dependent, states are forced to work with each other rather than oppose one another. A unified economy would also turn Europe into one market and increase the continent’s role in the international monetary system. In March of 1979, eight countries officially participated in the European Monetary System (EMS) by pegging their currency to the German mark. By tying their monetary policy to the Bundesbank’s well known monetary targeting policy, they were able to import German credibility to reduce their own inflation. Indeed, EMS members considerably reduced their inflation by exchange-rate targeting, making Germany the anchor country. France reduced inflation from about 5% in 1987 to 2% ...
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