Benefits of the Euro

In: Business and Management

Submitted By Cara
Words 291
Pages 2
Benefits of the EURO
1. Transaction Costs:
There will be no longer a cost involved in changing currencies; this will benefit tourists and firms who trade within the EURO area. It has been estimated that this benefit will be equal to 1% of GDP so will be quite significant. (this is sometimes known as frictional costs)
2. Price Transparency:
With a common currency it will be easier to compare prices in different European countries because they would all be in Euros. This enables firms to source cheaper raw material and consumers to but cheaper goods For example, new car prices are much higher in the UK than elsewhere, a single currency could help reduce these price differentials.
3. Eliminating Exchange Rate uncertainty.
Volatile swings in the exchange rate can destroy the profitability of exports. This undermines business confidence in investing. Therefore with a single currency business confidence should improve leading to greater trade and economic growth.
4. Improvement in Inflation Performance.
The ECB which sets interest rates for the whole Eurozone area will be committed to keeping inflation low; countries with traditionally high inflation will benefit from this. However this point is debatable as countries outside the Euro have maintained low inflation.
5. Euro could emerge as a global trading currency
6. Inward investment
Inward investment may increase from outside the EU as firms take advantage of lower transaction costs within the EU area. Recently the Chairman of Nissan said the UK would lose inward investment if it stayed out of the Euro
7. Economizing on foreign currency reserves
8. The financial sector could benefit. It would be easier to conduct banking and insurance with a single currency. It would be easier to trade German shares on the London stock…...

Similar Documents

To What Extent Do You Agree with the View That the Uk Economy Would Benefit If the Euro Were to Be Adopted at Some Point in the Future

...Eurozone countries, European tourists can bring more spending power into the UK as mentioned in extract D and in a time of recession, strength seems to come in numbers. Hence the UK could benefit from an adoption of the Euro. The most controversial issue is that the European Central Bank (ECB) will take over monetary policy if the UK were to join the 17-countries strong zone. The problem with this is the ‘one size doesn’t fit all’ dilemma that would make British interest rates the same as the Eurozone, by increasing it to ensure a low inflation rate, which is a priority in the ECB. Arguably, in the UK, this is at the expense of promoting economic growth and spending since the Bank of England tolerates a higher rate of inflation of 2% with a margin of ¬¬+- 1% because their priority is to avoid a double-dip recession. The interest rates in interest would cause a decrease in the marginal propensity to consume as well as increase loan debts, shown in the diagram with an inward shift in AD, as consumption and investment falls. Although there is also a decrease in Imports, it is marginally smaller than consumption (that accounts for 65% of Aggregate Demand). This leads to a fall in Real National Output, which accounts for growth as well as the price level. On the other hand, the UK could benefit from the European Single Market, since the Treasury’s official assessment of its five economic tests acknowledged that EMU membership for the UK could enhance productivity by......

Words: 796 - Pages: 4


...Introducción La adopción del Euro como moneda única entre un conjunto de países de Europa, tales como Francia, Alemania, Italia, España, entre otros, exceptuando al Reino Unido, se realizó durante 1999. Esta unión tenía como objetivo el unificar y fortalecer lazos entre los países de la zona euro, de tensión bélica en años anteriores, con el fin de beneficiarse como bloque en contraposición del dólar estadounidense. La adopción de una moneda única traía consigo una serie de beneficios que permitiría mejorar la competitividad de los países que la componían, sopesando los costos de no pertenecer a dicha congregación. Los principales beneficios que se destacan, son los siguientes: • Reducción costos de transacción,* • Eliminación de la incertidumbre por las tasas de cambio,* - Reducción costos de cobertura cambiaria y - Reducción de costos de variación de divisas en la zona euro • Los consumidores podrán beneficiarse al poder comparar precios entre mercados de la zona euro, • Aumentar la competencia a lo largo de Europa, trayendo como consecuencia una reducción de precios, • La reducción de los costos de transacción y eliminación de riesgo cambiario tendría el efecto de promover la inversión e intercambio en la zona euro. • La integración económica de Europa, mediante una única moneda, trae consigo la restructuración corporativa vía fusiones y adquisiciones...

Words: 1456 - Pages: 6

Euro Zone

...EUROZONE CRISIS ABSTRACT Euro crisis was not fortunate. It was something that could be avoided if proper care was taken. The European sovereign debt crisis has emerged out of a situation that has made it difficult or impossible for some countries in the euro area to re-finance their government debt without the assistance of third party. It was not only the government sector that lead to this crisis but major cause of it was the private sectors taking up too much of loans. The report also states the impact of euro zone crisis on the world and the India. The Eurozone crisis is systemic in nature. It is a result of policy failures in the way European Monetary Union (EMU) was designed, constructed and implemented. In particular, the crisis is a consequence of the failure to put in place certain necessary institutional components. INTRODUCTION The global economy has experienced slow growth since the U.S. financial crisis of 2008-2009, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe. Greece, which spent heartily for years and failed to undertake fiscal reforms, was one of the first to feel the pinch of weaker growth. When growth slows, so do tax revenues – making high budget deficits unsustainable. The result was that the new Prime Minister George Papandreou, in late 2009, was forced to announce that previous governments had failed to reveal the size of the nation’s deficits. In truth, Greece’s debts were so large that they......

Words: 3126 - Pages: 13

The Euro Crisis

...The Euro Debt Crisis: Greece’s and its Next Move Matthew Schrock Financial Markets & Institutions Dr. Victoria Geyfman December 6, 2012 “The Euro Crisis and Greece’s Next Move” The Euro currency, during its original preparation and issuance, had been seen with optimism. It was presumed that the new union of European markets would create a new economic power within Europe, matching it with other economic leaders such as the U.S. and other powers. At this point in history, the Euro seems to be on the brink of despair. The European Monetary Union had determined and established the prerequisite diplomacy and policy making to assure a newly created stable and integrated economy of Europe. The reality of this new currency and monetary union is far from the original optimistic outlook. Policy set forth in the original agreements and conditions of the European Monetary Union that had been established before its adoption had been treated without regard by countries. This disregard started with deceit from Greece but quickly became almost the status quo. Greece is known as the catalyst and a scapegoat within the views of the Euro debt crisis. Greece is on the brink of insolvency and others are following. Options are available in this time of uncertainty, whether they are conventional or not, that could result in Greece remaining within the Euro and accepting austerity or altering their status and participation within the monetary union. The decision that will......

Words: 3546 - Pages: 15

The Euro and the Uk

...the driving impulsion." Ironically, today, only Britain could possibly rival Denmark for anti-EMU (European Monetary Union) feelings. In 1992, after tough negotiations, Great Britain signed the Treaty of Maastricht but with a special demand: an opt-in option. This meant that Britain could join the EMU whenever it decided to do so. Ever since the election of Prime Minister Tony Blair and his Labour Party, the government argues that the country should join the EMU when and if the economic conditions are right. Denmark had asked in the Treaty of Maastricht for an opt-in option, however, on September 28th, 53% of the Danes decided to keep the krone. Economically, the UK would find more advantages than not in joining the Euro zone, as shows the following table[1]: |Advantages of entry |Disadvantages of entry | |No cost or uncertainty of changing currencies |Less ability to offset local shocks to real demand | |Lower interest rates |Possible deflationary bias at the beginning | |Fewer output fluctuations | | |Better market access | ...

Words: 3967 - Pages: 16


...Euro off four-month high by Alice Ross The euro remained close to a four-month high but pared some gains as risk-related currencies pulled back ahead of uncertainty over monetary easing plans in the US in the week ahead. The euro traded below $1.28 for much of the day, having earlier hit a session high of $1.2812 following a global risk rally sparked by the European Central Bank’s plans to buy government bonds to help address the eurozone debt crisis outlined last Thursday. Currency analysts said that expectations the US Federal Reserve could announce monetary easing this week, following weak jobs figures highlighting the fragile US economy on Friday, would be the main driver of the forex market in the coming sessions. A decision by the German constitutional court on whether to ratify the European Stability Mechanism, the eurozone’s new bailout fund, on Wednesday was also seen as crucial for risk appetite. “If the ESM laws are upheld, the event will pass with only modest additional benefit for the euro and risk sentiment,” said analysts at Credit Suisse. “However, a ruling against the legislation would likely represent a major risk aversion and systemic stress event.” The euro pared recent gains against the Swiss franc, after hitting its strongest level all year on Friday as pressure on the Swiss haven lessened following the ECB’s action, which was widely seen as boosting confidence in the eurozone. On Monday the euro was lower against the franc, slipping 0.2 per......

Words: 327 - Pages: 2

Euro Crises

...THE EURO IN CRISIS Objective Of Study The objective of the following study is to understand and analyse the recent euro debt crisis which led to the temporary fall of the euro. Through this study, attempt has been made to single out EU member countries and the events in those countries that led to the crisis. Policy recommendations have also been stated to further help the main objective of dissecting and understanding the problem. INTRODUCTION Over the last two years, the euro zone has been going through an agonizing debate over the handling of its own home grown crisis, now the ‗euro zone crisis‘. Starting from Greece, Ireland, Portugal, Spain and more recently Italy, these euro zone economies have witnessed a downgrade of the rating of their sovereign debt, fears of default and a dramatic rise in borrowing costs. These developments threaten other Euro zone economies and even the future of the Euro. Such a situation is a far cry from the optimism and grand vision that marked the launch of the Euro in 1999 and the relatively smooth passage it enjoyed thereafter. While the Euro zone may be forced to do what it takes, it is unlikely that the situation will soon return to business as usual on its own. Yet, this crisis is not a currency crisis in a classic sense. Rather, it is about managing economies in a currency zone and the economic and political tensions that arise from the fact that its constituents are moving at varying speeds, have dramatically different fiscal......

Words: 22358 - Pages: 90

Euro Disney

...conceptual relationship. [pic] The Venture of Euro Disney On April 12, 1992, Euro Disney was opened on time within its $4.4 billion budget. Situated in Marne-la-Vallee, France on a site that is one-fifth the size of Paris and just 20 miles to its west, Euro Disney was much like other Disney theme parks with a wide array of rides, attractions, hotels, restaurants, entertainment facilities, a campground, and even a championship golf course. Euro Disney is 49 percent owned by Walt Disney Company of the U.S. The company originally project 11 million visitors in the first year of operation for Euro Disney, but reported that attendance for the park’s first seven weeks had only been 1.5 million (it was expected that the majority of visitors have already been attracted to the park before the wet and colder fall and winter seasons, hence, attendance would have slow growth). The break-even point was estimated to be between seven and eight million. While the nearby French residents were projected to account for half of the park’s attendance, they only make up an unexpectedly small portion of the entire attending body. Meanwhile, the Disney restaurants and hotels only registered occupancy rates of just 37 percent. With revenues for its first quarter of operations being only $489 million, Euro Disney had to declare that it would incur a loss for the fiscal year of 1992 (ending in September), causing shares of Euro Disney to drop by 31% since the opening of......

Words: 4378 - Pages: 18

Eurozone and the Euro

...Eurozone: Euro Falling? In recent news, many of the Eurozone Financial Ministers met to discuss the value of the Euro, how they will reform the outstanding debt situation within the Eurozone, and how they will respond to strengthen its power. However, discussions have come to a standstill as German Chancellor, Angela Merkel, is only looking out for the best interests of her country. She wants those financially irresponsible countries, such as Greece, to reform their ways and is, moreover, concentrating her energy instead on changing Eurozone treaties to allow closer fiscal union and supervision of member nations' budgets, even though analysts have told the Euro-bearing nations that the currency might take a harsh blow from which it will never recover, possibly leading to the complete dissolution of the Euro currency. People are saying that this will only have an effect on Europe, but they are wrong. The official decisions that are made will affect the rest of the world and will either cause Europe to rise up to the occasion or make the world enter another Era of Depression. It is because of these reasons that show Europe’s debt crisis has forestalled market activity; they are implementing characteristics of a mercantilist society, modernizing their economic systems to benefit only themselves, and a globalized economy will occur, whether its one of prosperity or trepidation. Mercantilism which is the economic theory that European governments used serving only their......

Words: 1528 - Pages: 7

A Study of the Benefits and Costs Which Might Result for Uk-Based Firms Should the Uk Adopt the Euro

...A Study of the Benefits and Costs which Might Result for UK-based Firms Should the UK Adopt the Euro Name: Louise Tibagalika Module: The Global Business Environment Tutor: Phil Johnson Submission Date: 10th February 2014 Academic Integrity Statement: I have read and understood the Academic Integrity guidelines for Kaplan Open Learning and the University Of Essex, and declare that this assignment conforms to all of the rules and regulations contained therein. Please note: the guidelines can be found in the Student Handbook (see section 6.4). Introduction The euro is the single currency established in 1999, currently shared by 18 countries of the European Union’s Member States (, 2014). Due to the number of advantages such as the stimulation of trade and disadvantages such as economic instability, the decision for the UK to adopt the euro is a big economic and political debate at present which will affect businesses and the public in many ways. The following report will look at the advantages and disadvantages for businesses and answer the question as to whether the UK government should proceed with the decision. Objectives * Assess the benefits of the UK adopting the EURO * Assess the drawbacks associated with the UK adopting the EURO * How businesses can utilise these benefits and survive in the international market * Look at the political, economic, social and environmental factors * Provide workplace and personal......

Words: 2433 - Pages: 10

Euro Dis

...1) Although Disney in California and Orlando were a huge success the same cannot be said about Euro and Hong Kong Disney. With good intentions, they seemed to not focus on key features that would have brought their business to the top. Euro Disney lost a lot of focus with the culture they were building in. They took the Americanized Disney and thought they could do the same in Europe. Unfortunately most of Europe did not agree with their thinking. Europeans are huge on their culture and remembering where they came from and when Disney brought in a theme park with American ideas most locals did not want anything to do with it. It was too flashy, with the glitz of a theme park but it lacked the variety and originality they craved. French people also already had their favorite original characters they were used to, such as Asterix, they did not grow up watching Mickey Mouse so they should not be expected to flock to the opening of Disney characters like Americans would. When building Hong Kong Disney they learned from their mistakes and were sure to make this theme park more culturally acceptable. They went the extra mile to make sure that this park would reflect the Chinese principles. Unfortunately, this did not bring them success. They spent most of the budget on focusing on bringing the Chinese culture with Disney that they slacked off on the size and amenities they are so well known for offering. They blended in with every other theme park that Hong Kong had to......

Words: 985 - Pages: 4

Euro Zone

...Join the Euro Club? When the euro was introduced in January 1999, the United Kingdom was conspicuously absent from the list of European countries adopting the common currency. Although the current Labour government led by Prime Minister Tony Blair appears to be in favor of joining the euro club, it is not clear at the moment if that will actually happen. The opposition Tory party is not in favor of adopting the euro and thus giving up monetary sovereignty of the country. Public opinion is also divided on the issue. Whether the United Kingdom will eventually join the euro club is a matter of considerable importance for the future of the European Union as well as that of the United Kingdom. If the United Kingdom, with its sophisticated finance industry, joins, it will most certainly propel the euro into a global currency status rivaling the U.S. dollar. The United Kingdom for its part will firmly join the process of economic and political unionization of Europe, abandoning its traditional balancing role. Investigate the political, economic, and historical situations surrounding British participation in the European economic and monetary integration and write your own assessment of the prospect of Britain joining the euro club. In doing so, assess from the British perspective, among other things, (1) potential benefits and costs of adopting the euro, (2) economic and political constraints facing the country, and (3) the potential impact of British adoption of the euro on the......

Words: 264 - Pages: 2


...Euro – Main Points: * The introduction of the Euro implied the beginning of a new era for economic policymaking in Europe, with a new environment calling for new arrangements for economic policy coordination. And the significance of the euro's launch goes far beyond its economic dimension. Its introduction in 1999 was the crowning achievement of a hugely complex political, legal, and technical process. * The level of economic integration between nations is also rising. The most well-known example of this is the European Union (EU). Forms of economic integration * The first level of formal economic integration is known as a free-trade area or agreement (FTA). Under a FTA all members remove tariffs on the products traded with each other, while maintaining their individual tariffs with the rest of the world. One of the issues with this form of integration is that non-member counties will export their products to the member country with the lowest external tariff and then into any of the other member countries with higher external tariffs, this practice is known as transhipment (Appleyard, Field & Cobb, 2006: 376). * The second form of economic integration is known as a customs union (CU). A CU retains all the elements of a FTA but in addition involves the abolishment of their individual external trade policies. This is done by establishing a common external tariff (CET) which removes the possibility of transhipment by non-members. Members of a CU also......

Words: 1648 - Pages: 7

The Euro

...THE EUROPEAN UNION CURRENCY: THE EURO ACCOUTING I The euro, in application of the Maastricht Treaty, entered circulation on January 1 2002. It is the official currency of 16 of the 27 member states of the European Union (EU). That union is made of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia and Spain. The euro has become the second largest reserve currency and the second most traded currency after the U.S dollar (wikipedia). The creation of a single currency born out of a political concern turned out to be a good and strong monetary decision. According to the European Commission (website) the euro has provided many advantages and benefits over the previous situations where each member state had its own currency. Not only are fluctuations risks and exchange cost eliminated and the single market strengthened, but the euro also means a closer cooperation among member. Others assets are more choices and stable prices for consumers and citizen, a greater security and more opportunity for business and markets, an improved economic stability and growth, more integrated financial markets and a tangible sign of an European identity, a stronger presence for the E.U in the global economy making the euro a rival for the dollar. With all those benefits the euro is not without its critics. They were those who feared a lost of national identity because they had to relinquished their...

Words: 425 - Pages: 2

Euro Crisis

...THE EURO CRISIS The entire global attention is currently focused towards the ongoing crisis in the Euro zone. The present article seeks to simplify and logically explain the crisis which has engulfed PIIGS. Q1) What does the term PIIGS stand for? Ans. PIIGS stands for Portugal, Ireland, Italy, Greece and Spain. The current Euro crisis started in Greece and has now finally spread to Italy. In fact, there is a worry that ultimately it will slowly engulf the entire Euro zone and that there will be sovereign defaults. Q2) What is a sovereign default? Ans. Sovereign default occurs when a country defaults on the loans it has taken and is unable to repay them as per the originally decided terms. Sovereign default is considered catastrophic as the lenders normally have to make huge sacrifices. Q3) How did the crisis originate in Greece? Ans. Greece had a very liberal social security program for its citizens. Govt aided healthcare, education, pensions etc. which were heavily subsidised as the Greek Govt was bearing the major part of the expenditure. The Greek Govt went on a borrowing spree to finance its expenditure leading to the current debt position which looks unsustainable. It is feared that there will soon be a contagion effect. Q4) What is the contagion effect? Ans. Contagion is derived from the word “contagious” which means to spread. The worry is that this alarming situation would spread to soon other Euro regions leading to many sovereign defaults. Already pain is......

Words: 952 - Pages: 4