Research Topics: European Currency Unit

EURO

OBJECTIVES As a person with knowledge of international finance, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this topic and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it. By delving into this project paper, the author intends to have better insights into how the euro was thought up, formulated and then imparted down into the European continent. The author hopes to have an in-depth understanding as to how the introduction of the euro enabled European countries to compete effectively and profitably in this era of internationalization where competition is extremely intense. In order to reinforce the learning objectives, two key focal issues were focused upon i.e. innovation and diversity. Innovation was discussed with regard to the introduction of euro where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.     EXECUTIVE BRIEF This essay utilized the euro as the model currency to review its present impacts and how it dealt with critical situations. From the analysis, key trends in the introduction of the euro were then identified, how it worked and its effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess the euro with regard to its suitability to critical situations, during which the internal capabilities of the euro in relation to the strategy being followed by most European countries was determined also. An overall analysis of the performance and effectiveness of the euro was also conducted to assess and compare the capabilities of this currency with those of others. Gaps in the capabilities of the euro were then identified. Finally, several choices of strategies to strengthen the euro as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.           INTRODUCTION The euro is the official currency of the European Union member nations. It was introduced in 1999 in order to contribute to the efficient and effective implementation of the policies and tasks necessary to satisfy the European citizens, workers and government officials. The introduction of the euro focused on the careful management of the processes involved in the production and distribution of products and services within the Eurozone (2002). More often than not, countries outside the Eurozone don’t really have the capabilities to compete against the strength of the euro. Instead, these countries engage in activities that various schools of management typically associate with trading with the strength of the euro. These activities include the manufacturing of products, product development, production and distribution. However, the euro deals with all operations done within member countries of the European Union. Activities such as the management of purchases, the control of inventories, logistics and evaluations are often the introduction of the euro. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, the introduction of the euro includes the analysis and management of internal processes.             The Euro and its Objectives   The euro’s introduction has four main objectives: A)   Remain one of the top currencies in the world. Being one of the top currencies enables the euro and the Eurozone countries to command the respect and confidence of other nations. Thus, the Eurozone countries are able to expand their operations through the continued strengthening of the euro. B)   For the European Union countries to gain more profit than other non-member nations. The euro currency that is being used in the trading process used all over the world is able to meet high quality standards. As a result, the European Union member nations which use the euro are able to earn more profit as against other non-member nations (Bhattacharya, 2000). C)   Build the best currency portfolio, with the euro as the international currency of flagship; and D)   Maintaining its independence. Being an independent currency allows the euro to continue its tradition of excellence in both its ability to purchase products and services by setting new trends and standards. In order to achieve these objectives, the European Union implements a strategy of selling a combination of local brands and international brands, but maintaining the euro as the flagship currency. The European Union also aims for broader positions as well as either the top or secondary positions in any market. Any of these positions would be enough for European Union member nations to deliver a high level in terms of production, marketing and distribution using the euro. Moreover, these positions create a platform from which the European Union member nations can sell or trade their premium and other specialty products. With a continued focus on the structures of the costs, the above mentioned objectives should undoubtedly be reached. The Euro and the European Union The European Union (EU) member nations experienced electoral and political transitions and crises following the introduction of the euro.  There have been at least four political trends that have emanated from these events. These are: (a) the cry for democracy and reforms in most industries; (b) increased popular and local-level assertiveness; (c) greater public accountability; (d) re-definition of the concepts of power and politics. Also, the forms of political economies have slowly shifted from a bipolar (big government-big business) to a tri-polar structure (authorities – private sector – civil society).               The implementation of the Free Trade Area, or FTA, which laid out a comprehensive program of regional tariff reduction in the European Union, will be continuously implemented in phases through the year 2008 ( 2003). Over the course of the next several years, the programs in tariff reductions were made broader. Efforts to eliminate non-tariff barriers and develop common real estate market standards were initiated. In addition, the European Union also was able to formulate framework agreements for the intra-regional liberalization of trade using the euro in markets. Industrial complementation schemes meant to encourage intra-regional investment were also approved. Long-term Trends Despite the adverse economic trends in the first half of the year because of the introduction of the euro, European member nations as a whole still experienced a relatively robust economic growth. It is estimated that the European Union, taken together, posted a better-than-expected GDP growth of 4.5% last year, slightly higher than the 4.1% growth that they achieved in 2002 (2004). It is a common knowledge that the euro is still a relatively new currency and is still in its early stages of development. However, it has shown signs of rapid growth and it is being estimated that there will be more entrepreneurs that will invest in various industries using the euro within the year. And it is further being expected that within the next years the tremendous growth and technological advancements will continue to help the prosperity of the euro. E-commerce and multimedia terminals are just some of the technological advancements already being expected. Therefore, the continued growth and development will also make it imperative for localization to occur in the process of the introduction of the euro in the years to come.   Short-term Trends There have also been social and cultural trends that have been evident over the last 12 months after the introduction of the euro. These include: (a) the irreversible rise of civil society against the restrictions; (b) the rise of civil society blends perfectly with a tri-polar structure of political economy; (c) the increase in the roles of intellectuals; and (d) the beginning of a period of introspection (2004). The creation of restrictive policies, commercialization, and protection has been a significant source of comparative advantage of most enterprises and economies and a major driver of their competitive strategies. Indeed, the European Union is fully aware of the pressing need for a long-term policy commitment to collectively transform the euro into a currency which is largely based on knowledge, driven by innovation and sustained by the active participation of all major sectors. The European Union has pledged to work together to help accelerate the pace and scope of euro policy formulation, euro commercialization and protection; to improve the regional framework of policies and institutions relating to the development of euro, including the development and harmonization of enabling monitoring and evaluation systems; to promote cooperation and dialogues within the European Union member nations; to strengthen euro-related human and institutional capabilities in the region, including fostering greater public awareness of issues and implications relating to the euro’s development. The Euro and its Impact on the US Dollar After the introduction of the euro, its exchange rate against the U.S. dollar was not very impressive at all. At the onset of 1999, the euro’s exchange rate against the U.S. dollar was at US.18, and even went to the lowest exchange rate of .8228 the following year. The year 2001 brought some optimism for European Union member nations because the exchange rate rose to a respectable .96 (1994). On the contrary, it was the US dollar that suffered a huge decline that year as the U.S. trade deficits increased tremendously. Modern economists and experts hypothesize that a significant decline in the value of the US dollar and a significant increase in the value of the euro would eventually result to a significant gain in U.S. exports and a significant loss in U.S. imports, as the US exports becomes less costly and the US imports becomes more expensive. Therefore, a significant decrease in the value of the US dollar makes foreign investment in the U.S. a lot less expensive. In the year 2001, in an effort to contend with the growing strength of the Euro, the US based its pricing strategies on several key trends that continuously shaped the global marketplace. One particular trend was labeled as “premium-tization” (1981). This phenomenon caused the polarization of different markets. This then triggered the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices was also simultaneously taking place, therefore squeezing out the middle range. More often than not, the US business sector underwent internationalization which led to a tighter squeeze for shelf space. This in turn left the US as a winner. It is for this reason why the US valued the “premise sector” so much because this allowed consumers to try their products and services at low risk and price. In terms of growth rate, the US dollar had a disproportionate share of growth at an estimated 4-5% per year since 2001, as against the 2-3% overall growth rate for the euro. These rates come up as a result of both the rise in GDP among developing markets and consumer demands for higher value propositions, which is obviously dominated by international brands. Therefore, the US has to increase its portfolio and operate globally to become competitive against the euro. The euro practically operates on a relatively fragmented market, with the top four Eurozone nations accounting for 22% of global growth five years ago and only about 28% today. RECOMMENDATIONS The euro has been able to remain one of the world’s leading currencies since its introduction in 1999 primarily because of the execution of the European Union’s strategies to perfection. Add to the mix the euro’s mark of dedication to high quality of service and the formula for success is at hand. However, I am not totally convinced that the strategies that the European Union implements currently would be as effective as before. For one, consolidation and globalization are taking place across most countries and their currencies, and the euro is not excluded. The European Union has implemented various strategies to fully adapt for the need of the euro to become competitive globally.  I suggest that the European Union should implement a more sober approach to maintain consumer loyalty with their member nations. There is nothing wrong with building new loyalties with the other global consumers. But there are instances, for example, in the Netherlands, where the local market is often neglected. As a result, local consumers will tend to develop a bad impression about the European Union and its roles. While it is good to make moves to strengthen the euro, it is even better to keep and maintain the older and more established markets within the member nations. This way, the European Union will remain unscathed amidst the advent of consolidation and globalization. CONCLUSION There is definitely a need to reconcile both the inside-out and outside-in capabilities of the euro. While most of the European Union’s practices regarding the introduction of the euro involve focusing on the euro’s core competencies with market position following its resource base, the European Union and its member nations will be put into a disadvantageous position should they choose to neglect both the macro as well as industry environment. Therefore, the European Union has to be aware of the latest technological changes, as well as changes in political, economic, legal and even demographic trends in order to develop the outside-in capabilities, such as market sensing, customer linking, channel bonding and technology monitoring. The advantages enjoyed by the European Union member nations through the use of the euro currency may come in the form of increased revenues. Knowing what the market demands and the latest trends could help the European Union fully exploit its research and development capabilities to come out with economic strategies meant for the prosperity of the euro which are not only cost-effective but also high in quality and performance. This is how marketing communication can significantly contribute to the strategic management of the euro. The strategic option can even be used as marketing tool where the focus is on staying close to the European citizens and listening to their feedbacks. On the flip side of the coin, there will be huge mobilization of resources involved, and the associated risks bestowed on the European Union. Nevertheless, the mentioned strategic option seems the most practical in the wake of globalization, since there is a sudden shift towards a more integrated and independent world economy. The key stakeholders too should not have any objections so long as the euro’ core strengths are not threatened. By virtue of the European Union’s centralized control of its member nations, it is being expected that major barriers should not exist in carrying out such an option except additional time may be required given the scope and span of these operations.   The results of the analysis carried out on the introduction of the euro indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the value of the euro could still be expected to increase faster than average. The review of the euro’s capabilities and objectives revealed very little inconsistencies regarding the European Union’s strategies in strengthening it. This is coherent with its traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the member nations of the European Union. The analysis of the euro’s impacts on the US dollar revealed certain gaps, most of which are biased towards the US environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the competitiveness of both currencies. Also, the European Union has to find a balance between adherence to internal forces within their member nations and to the changing forces of the environment in order to implement such strategic options.           Credit:ivythesis.typepad.com

EURO

OBJECTIVES As a person with knowledge of international finance, the author has always brought up to his superiors the viability of strat...

The UK and the EU – the Mutual and Unusual Relation

The UK and the EU – the Mutual and Unusual Relation               The prevailing trend in the international environment in the recent decades has provided greater openness in various aspects such as socio-politics, economics and trade, investment, finance and technology resulting in increased international integration and interdependence between states. Further, the growing culture of globalization and its perceivable effects in several areas of the world overlay the contemporary changes in the existing world economy and standards (2003). Globalization is currently the tag for the promises as well as risks facing humanity in the modern era (1999;2000; 2000;  2000). As a result, there is global cooperation among independent states directed to improved socio-political, economic, and cultural progression. The presence of communal relationships through organizations represents such movement like the European Union (EU) and its members. For instance, with the given existence of federal state like United Kingdom of Great Britain, or the UK, the EU policies are subject to discussion in terms of the responsibility of the UK’s national government.               This paper aims to discuss the framework of EU, its functions and other related mechanisms affecting its immediate members and the world. Specifically, this paper presents the mutual and unusual relation of United Kingdom (UK) to the said organization.   European Union – the Big League United in Diversity The European Union, commonly known as EU, is a popular communal organization of European democratic countries dedicated to increasing economic prosperity, lasting peace, and strengthening cooperation among its members (. It is perhaps the most important agent of change in contemporary government and policy-making in Western Europe (2000). As unique body ( 2006), it is composed of 25 countries and 450 million people that are diverse but united in purpose. Accordingly, it is not a state intended to substitute existing states but just a body aiming for international cooperation. The EU and its member states have set up common institutions with equal delegation of sovereignty that will serve the general welfare of its people at European level (2006). Primarily, it works to promote and expand cooperation among its members in areas, including economics and trade, social issues, foreign policy, security, and judicial matters.   According to  (2000), there are five variants of the EU policy process namely – a distinctive Community method; the EU regulatory model; multi-level governance; policy coordination and benchmarking; and intensive transgovernmentalism. Among the activities that the Union is doing are regional actions, extension of structural policy to embrace the new member states, social dimension, employment policy, financing the common policies, reforming the common agricultural policy, sustainable development, and technological innovation ( 2006). Its progress, however, has not been consistent, with spurts of activity separated by more-dormant periods (2001).   Today, the most immediate challenge that the EU faces is to make a success of the euro, but the future of the single currency rests in part upon how acceptable it proves to world financial institutions and markets. In the long term, enlarging the EU by including Eastern Europe should improve economic prospects by extending the single market and stimulating economic growth and trade. The EU hopes that enlargement will raise the EU’s standing as the major European voice in world affairs and contribute to security and stability on the entire continent ( 2001). Conversely, the EU now stands on the edge of an eastwards expansion, perhaps to embrace a number of central and east European countries, with very different inheritances. One important question which follows is whether this fit between country characteristics and European process will be sustainable in a larger and more diverse Union.   The EU and the United Kingdom – the Large but Indefinite Effect In the overall political setting of the state, policies governing the operations of the government create a significant impact to the entire population. These policies include ratified government legislation – both locally and centrally, that is geared towards addressing the needs of the population. To a certain extent these legislations are considered policies attempting to enhance the welfare of the public. Aspects such as social security, housing, healthcare, and education constitute these social policies. In the current trend of internationalization and globalization, the said concepts are continuously changing to adapt to the existing situations that states have to contend with.   Perhaps the fundamental point of diversity in British politics is that the UK is a multinational state composed of four parts – England, Wales, Scotland, and Northern Ireland. A major change in the political environment of the UK was its entry into the EU, or the Common Market two decades ago (1998). Joining the EU introduced a whole new level of government to the UK.  With the given truth, the importance of Europe for Britain is increasing, and pressures toward full integration of the European market place even more economic decision-making power especially in Brussels (1998). Historically, the UK has been one of the more reluctant members of the EU to accept that integration (1992). Accordingly, the British people express reluctance about any greater economic and political unification of the EU more than the people of any other European nation (1998). The UK may be a fraction of Europe, but it maintains some considerable distance (psychological as well as geographic) from its partners on the entire Continent. Conradt and colleagues also claimed that it is safe to say that British society is actually rather heterogeneous – characterized by the division of four separate countries within the borders of the UK and made more multipart by millions of immigrants who came form their former colonies that have flocked there. Working on the argument that there is indeed hesitation on the UK in joining the EU, there are some conflicting policies that are involved in the UK’s national government and the Union. For instance, the expansion of EU in 2004 risks the food and drinks industry of UK (2006). As stated by Simon, when the Union added ten new members, it was predicted to open better opportunity for the UK especially on business. According to his article, “Jim Dougal, head of the European Commission in the UK, said at the time that the creation of a single market of 455 million consumers would allow UK industry to tap into new markets, thereby boosting UK GDP by 1.75bn (pounds sterling)”. But now, the threat of competition among products from member states as a result of free trade is hunting UK’s food and drink industry due to the fact that democracy is highly proliferated within the borders of the continent as well as the members of the Union.   Furthermore, it is a known fact that the Parliament government of the UK is sometimes in conflict with some policy decision making and taking due to the considerations given by the EU (e.g. the case of European Convention on Human Rights). With this reality, the potentials of political diversity serve as barrier to eventual communal relationship. According to  (2006), the UK as a member state of EU is itself constrained in its policy actions by virtue of its membership. Further, the legal primacy of agreements reached in that arena is also controlled. Thus in areas such as rural affairs, fisheries, or the environment, British policy are constrained by EU commitments. Given the pervasive impact of the EU, it is critical to an understanding of how decentralization works generally to see it in this multileveled context (2006).   In the same reference,  and colleagues (1998) noted some actions of the EU are considered undemocratic and intrusive by many British politicians and citizens. The evidences of frequent close door arrangement and negotiations are apparent. With such incidents, the UK is not extricating themselves from Europe because it does not appear to be a desirable option for most state officials. The nature of British government within an expanding Europe is not yet known, but it is likely to be different from that existing today. It also could be argued that the most important problem for government in the UK is its ability to make and implement unpopular policies with little effective restraint and thereby to reduce the legitimacy of government with the population.   With the given diversity, the challenge of supranational participation in EU policy is not unique to the UK (2006). Supranationalism is a principle used in decision making of international organizations. It characterizes power as held by independent appointed officials or by representatives elected by the legislatures or people of the member states. Supranational institutions, on the other hand, can be defined as decision-making structures in international organizations that possess legal authority to make rules that are binding on the nation-states that belong to the organization in question (1998). Supranational laws and policies thereby transcend national policymaking autonomy to a greater degree than intergovernmental treaties or agreements whose enforcement is contingent on the willingness of individual countries to comply with their terms. The EU combines supranational and intergovernmental features in its institutional arrangements and decision-making powers. Alongside national governments in the UK, France, Germany, and other West European countries, the EU constitutes a crucial organization for the coordination and implementation of economic, social, and foreign policies on the regional level of governance (1998). The significance of the EU lies not only in its economic status as the nucleus of the world’s largest trading bloc and integrated regional market but also in the declared intentions of political leaders in both the EU and its member countries to achieve economic, monetary, and political union by the end of the I990s (1992). Implementing these objectives will entail the further transfer of significant degrees of national decision-making authority to supranational institutions – a process that began when the European integration movement was launched during the early I950s (1991). Once it is fully attained, economic, monetary, and political union will firmly establish the EU as a powerful governmental system in its own right.   On the flip side, the effects of the EU in the UK are also remarkable. The EU serves as a strong ally of the UK in proliferating continuous growth in their economy and global competition. UK’s membership to the Union is directed to sustainable development not only within the limits of the territory but also to the world economy as a whole. For instance, the agricultural groups have traditionally been successful in obtaining subsidies for their crops and have been especially advantaged by UK’s entry into the Union and the access to the subsidies of its Common Agricultural Policy (CAP) (1998). Further, the EU’s decisions in 1988 to reform the CAP, and the more equitable basis for budgetary contributions in the period since 1984 have weakened some of Britain’s grievances against the Union (1992). Moreover, the programme for completion of the Union’s internal market has brought a much closer identity of purpose between its objectives and those of the Conservative Government. They have shifted a good deal of their lobbying focus to the European level.               In conclusion, the EU is a communal organization that works to the overall welfare of the European continent and its members. The governing powers of EU is not mere political in nature but directed to economic, social, cultural, etc. progression. Diversity, as a known quality of some members of the Union makes this organization unique. The presence of national government among its state members is sometimes considered as source of controversies and conflicts as seen in the case of the UK. In the EU, there are some set standards that every state member must comply with but with the given conventions of government, there are unavoidable conflicts of policy integration. The UK national government is sometimes contradictory in terms of policy making and taking. The particular history of reluctance in the integration of the UK is evidence that there is indeed ambivalence of the mutual and unusual relation of these two individually governing state and organization.               But all in all, the welfare of the European community – may it be Western or Eastern regions, is the main priority of the Union and its branches. Along with the situational cases of the UK, the Union’s role in the overall stability of economy, politics, security, and many other parts of the member states is foremost. Therefore, there is a need for collective bargaining and cooperative movement to reconcile the contradictions and other problems of the UK and the EU. In the first place, there is mutualism among them – the one benefit from the other and vice versa.     Credit:ivythesis.typepad.com

The UK and the EU – the Mutual and Unusual Relation

The UK and the EU – the Mutual and Unusual Relation The prevailing trend in the international environment in the recent d...

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE     INTRODUCTION               Europe houses some of the most affluent and powerful nations in the world. The continent boasts progressive economies that highly influence the process of international trade and investment. The United States serves as both the greatest competitor and ally of Europe in world power with its stable economy and high standard of living. Along with the United States, other powerful and highly developed nations have emerged throughout the years such as Japan, South Korea, Canada and Australia that also pose certain threats to the European power. Thus, the numerous states of Europe have always been confronted with the issue of unity if they are to stay as a dominant nation. Kirste (2007) claims that the call for unity was answered by the establishment of the European Union on November 1, 1993 which is an alliance of twenty-seven European states for the purpose of strengthening economic, social and political coordination. The European Union’s policy on unity has also led to the development of a single monetary policy among European nations as a response to the concern on stability of currencies in Europe. The birth of the European Union gives way to the transformation of majority of European Union’s member-nations towards an integrated unit that shares single fiscal, monetary and economic policies to ensure price stability and consistent economic success in the entire European continent. THE MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE                 The European Monetary Union (EMU) or Euro has been the official single currency of thirteen members of the European Union which are Ireland, Belgium, France, Germany, Greece, Spain, the Netherlands, Italy, Portugal, Luxembourg, Slovenia, Austria and Finland since January 1, 2002 and has been an important aspect of daily living for 315 million citizens in the euro area (2007).  The Euro is considered as a vital element that would render immense opportunities and gains for Europe. However, anything that brings opportunities can be accompanied by risks and challenges (1999).                (1998) states that the future of Euro has always been in question as bankers and analysts doubt its sustainability. The most salient argument is that some policies governing the single currency do not have any element of security that may result to either uncertainty or lack of appreciation on the part of the participating countries and eventually end in withdrawal of membership from the union which would abolish the single currency system in the end. One very significant challenge confronting the sustainability of the Euro is that the thirteen participating countries have to comply with a single monetary policy advanced by the European Central Bank (ECB) but have to pursue independent fiscal policies on taxation, spending and provision of government debt. This requirement provides certain risks since if in cases that some of the participating countries encounter excessive fiscal deficit, it may result to a boost in the general level of inflation for the rest of the countries adopting the Euro. To counter this occurrence, the European Central Bank’s monetary policy has to implement higher interest rates which may lead to firm objection of some low-deficit countries to shoulder the costs of inflation incurred by countries with high deficits. Since the European Monetary Union does not offer any policy that would enable a member-country to refuse payment for high deficits by a fellow member-country, the low-deficit country has no choice but to share in the costs of the high-deficit country whereas this case is not possible if it has maintained its national currency (). Corollary to the independent fiscal policies administered by the countries adopting the single European currency, the governments of these countries are not guided by solitary mechanisms applying to various government expenditures especially in the aspect of pension and health care for the aging population. Although all member-countries follow the “pay-as-you-go” arrangement, the governments of the thirteen member-countries individually face and overcome financial pressures in the absence of a single policy to follow. The euro area is characterized by a rising number of aging citizens and a declining proportion of the working population. Hence, the member-countries are all suffering from an imbalance wherein contributions of employees for social benefits, health care programs and pension provision do not measure up to the number of aging and retired population who need these benefits. The imbalance forces governments in the euro area to either implement risky reforms such as reduction in social benefits or increase in taxes which eventually affect the people. Less social benefits while paying higher taxes would make the citizens think that the European Monetary Union is more a burden than a benefit because of lack of cushion against economic imbalances ( 2004).               Another inherent challenge in any monetary union that also threatens the long-term success of the Euro is the fact that the single monetary policies of the European Central Bank discourage any mechanisms responding to irregular economic shocks faced by any member countries (1998). First,  (2004) states that the Euro puts an end to flexibility of prices among member-countries as dictated by flexible exchange rates. This characteristic jeopardizes the ability of any member-country to manage its trade relations and its economic activities. For instance, a member-country of the European Monetary Union encounters a drop in overseas demand for its leading export products and goods. The country is obliged to modify its existing external conditions for trade to respond to the problem by adjusting prices of its exports.  Adjustments in prices can be done either by decreasing prices and wages in the prevailing currency or adopting exchange-rate depreciation. In a single currency system wherein a fixed rate arrangement prevails, the country can implement the first option while facing the consequences of depletion of its national monetary resources through a short-term balance-of-payments deficit. This situation would mean that the country using the single European currency has to be ready to suffer temporary economic burdens without intervention from other member-countries and has to be able to develop strategies during this stage (). Secondly, unlike the United States federal tax, the European Union does not have a solid redistributive transfer mechanism wherein tax receipts of developing countries are transferred to countries that have difficulty in fostering economic growth. The freedom of each member-country to formulate and administer its own fiscal policies is part of the purpose of the adoption of the single currency which is fiscal discipline. Fiscal discipline is encouraged in the sense that all member-countries have to independently oversee, manage and control their fiscal activities. No fellow member-country is allowed to intervene in case of economic conflicts. The absence of the redistributive mechanism in the European Monetary Union makes the low-performing member countries highly susceptible to the adverse effects of strict monetary policies. These countries have to get out of economic recessions on their own and are greatly pressured to cope up with those countries that are rapidly growing with the use of the Euro. Therefore, there is a possibility that citizens and officials of these countries would feel that the union does not protect them in times of recession and would result to three possible problems: mounting pressure to develop a new redistribution structure, lack of appreciation for the single currency and withdrawal from the union which would impact the stability of the entire alliance (1998).               Finally, the success of the adoption of the single currency is shadowed by nationalist tendencies of the member countries to protect sovereignty. Each country decided to participate in the union to partake of the social and economic benefits that it promises (1998). However, the prevailing structure of the European Monetary Union does not guarantee equality among participating nations. The overall membership includes heterogeneous nations that have their distinct demographics pertaining to per capita Gross Domestic Product, financial requirements and commitment to unified policies that discourage inflation. The possibility of additional new members into the union increases this threat to sustainability of the single currency. Lack of cohesion in the European Monetary Union entails higher probability of dissatisfaction and loss of interest for some member-countries (2004). When the citizens of these countries perceive that they are not enjoying any of the benefits that the single currency promises, they could encourage the government authorities to withdraw from membership and decide that going independently is a better option (1998).   LESSONS TO BE LEARNED FROM THE EUROPEAN EXPERIENCE FOR OTHER REGIONS CONSIDERING ADOPTION OF A SINGLE CURRENCY                 The European experience of a single currency although confronted with challenges, is also marked by numerous benefits. First, the Euro provides practical advantages to Europeans as they do not have to change currencies when they cross borders within the euro area, they can compare prices since the currency applies to the entire euro area, and they can use the Euro in several places outside the euro area since it is an international currency. Secondly, the participating countries can reap the benefits of a single market wherein exchange rate fluctuations and transaction costs are absent, and price transparency, more attractive foreign investment climate and higher competition prevail. Thirdly, the single European currency symbolizes unity among the various states of Europe which drives continuous integration and coordination. Finally, the single currency serves as an important currency in international trade and investment which makes the entire European continent a powerful player in the global economy (2007).                According to  (2004) the European experience with Euro conveys that adoption of a single currency as the culminating process in the pursuit of regional economic convergence does not take overnight to become established and successful. (1998) adds that to ensure that a single currency in Europe or in any other region of the world would be able to fulfill its purpose of fostering economic abundance, member-states that are using the currency should be able to grab the opportunities by promoting flexibility in policy making and strategic reforms in the product and labor markets. Policy makers in the member-countries must be able to understand that a single currency primarily aims for economic growth through fiscal discipline. Each country participating in a single currency union must be able to implement policies and strategies that would encourage price stability and address excessive deficits in order to guarantee that all member-countries would develop in equal pace. There is also a need for a commitment to achieving budgetary positions in a medium term period characterized by proximity to either balance or surplus to ensure that the countries would be able to confront normal irregularities in the business cycle and maintain a deficit in government expenditures lower than three percent of the Gross Domestic Product which is a requirement for sustainability of a single currency union ().(2006) assert that the value of fiscal discipline imbedded in the policies governing the adoption of the Euro communicates that the Europeans are committed to attaining regional integration in a win-win approach wherein each individual member-state of the European Monetary Union is given ample freedom and discretion in managing its fiscal transactions and economic activities while having allies to fall back on in case the country is unable to come up with potent solutions. The single currency serves as a form of discipline for all member-countries so that they would be prudent in harnessing their financial resources, not eternally depend on neighboring states during economic difficulties and contribute to an economically powerful European region.               Generally, there are four significant lessons that can be gleamed from the European experience of monetary cooperation namely the establishment of substantial institutional, legal and political foundations; the goal of achieving higher degree of economic convergence through a  single market; the creation of a regional process of financial market regulation and oversight; and the aim of macroeconomic integration through coordination in the formulation of economic policies and mutual supervision. Firstly, the European concept of monetary union is a prerequisite for political convergence. The different member-countries are forced to establish legal frameworks that alter the arrangement and authorities of various social or economic organizations at the regional level to extend into the boundaries and jurisdictions of other member-states and ensure that the independent policies of each member-country do not counter the goals of the single currency system. The single currency became a basis for the member-states of the European Union to share and pool their resources, economic policies and sovereignty into one solid framework of governance applicable to the entire union. Secondly, the adoption of a single currency is an answer to the pursuit of a single market. This important requirement connotes that member-states of a monetary union like the European Monetary Union should be prepared and willing to eliminate customs and regulatory restrictions, fulfill their obligations as dictated by the European Union Law, accommodate all legally produced and manufactured goods from other member-states, and not veto any legislative proposals from other member-countries. Thirdly, the adoption of Euro as a single currency in Europe encourages decentralized and coordinated surveillance of the financial markets and enhance foreign investment. Each member state is given the autonomy to manage its economic and fiscal affairs consistent with the monetary policies set forth by the European Monetary Union by overseeing local markets and keeping track of developments and trends in the market. The intelligence gathered from local surveillance of various member-states is open for transfer or sharing to other member-states which strengthens the ability of each country to accumulate vital information from the economy that can be made accessible to other countries and improve regional coordination (2002). Furthermore, an integrated surveillance of financial markets makes the region more attractive to foreign investments. Foreign investors would be enticed to enter the market because of lower costs and absence of exchange rates due to the common currency utilized in the market ( 2005). Finally, the European experience of a single currency is a story of consistent coordination and fiscal flexibility in formulating important economic and fiscal policies that in turn render advantages to all member-states. The member-states that decided to adopt the Euro are able to develop certain exchange rate or monetary mechanisms that are parallel to the economic order being pursued by the entire European Union. The mechanisms are very flexible in the sense that they are open to modifications consistent with changes in the broader context of the Union. The key element in establishing and maintaining a sustainable single currency is the ability of countries participating in the endeavor to be thoroughly prepared in giving up some forms of national sovereignty, be able to readily implement adjustments in existing fiscal policies and develop unyielding commitment to a greater regional integration (2004).                             Credit:ivythesis.typepad.com

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE INTRODUCTION Europe houses some of the most...

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE

MAIN CHALLENGES TO THE LONG TERM SUCCESS OF THE SINGLE CURRENCY IN EUROPE INTRODUCTION Europe houses some of the most...