Introduction
Every country in Europe has had intense debates over whether or not to adopt the Euro as a common currency. Adopting the Euro as a common currency in Europe has distinct advantages and disadvantages for member countries.
Advantages
With the US Dollar showing signs of weakness, nations across the globe would consider the option of switching to the Euro as the currency for international currency transactions (Kotabe and Halsen 73). The advent of globalization has made conventional currency frameworks such as adjustable pegs redundant. Increased cross-border capital inflows have made it increasingly difficult for countries to adjust their monetary policies. As a result, countries are finding the association to the Euro attractive from the point of view of currency stability. As the Euro is expected to be stable and have little inflation, the confidence of member states on the currency would increase, offsetting doubts about individual currencies. With more countries opting for the Euro, its stability would be further strengthened, making the Euro an attractive option in the Eurozone.
Countries also prefer the Euro to avert themselves from global contagions triggered by instabilities in foreign exchange regimes. If member states adopted the Euro, they would escape the risk of exchange rate uncertainty. This would result in increased trade amongst member states. With a single currency, member states in the Eurozone become empowered to compare prices realistically. Buyers would be able to make effective comparisons between goods, resulting in improved competition (Tavlas).
Disadvantages
Despite the perceived limitations in exercising an independent monetary policy in times of exchange rate fluctuations, countries would remain skeptical in giving up this modicum of financial independence in favor of the common currency. Merger into the Euro would render countries incapable to reacting to macro-economic shocks at the individual level. The financial turmoil in Greece serves to bolster the argument that nations need measures at their disposal to thwart the effects of globalized financial shocks (Tavlas).
The nations in the Eurozone have varying levels of economic growth. Nations would be fearful that a uniform monetary policy would stymie their growth. Adhering to the strict norms of deficit and inflation would force weaker states to deflate their economies. Estonia went through the process of deflation to meet the criteria for being a member of the Euro, resulting in unemployment rising from 5.5% to 16% in 2010 (Stasna).
Conclusion
While each member state would weigh the pros and cons of joining the Euro, the over-riding advantages of being pegged to a stable currency in an environment of rapid currency instability would tilt nations in favor of adopting the Euro.
Works Cited
Kotabe, Masaaki and Halsen, Kristiaan. Global Marketing Management. Danvers: Wiley, 2010. Print.
Stasna, Kazi. “Euro: The Common Currency Explained.” CBC.ca. 09 Dec 2011. Web. 06 Oct 2014.
Tavlas, George S. “Benefits and Costs of Entering the Eurozone.” CATO Journal 24.1-2 (2004): 89-106. Web. 06 Oct 2014.
