How can we ensure that the Single European Market benefits all of the European
Union’s citizens?
The creation of the European Union, commonly referred to as the Euro Zone, was an effective tool for enhancing international trade within the region. This is partly because the Euro was initially a strong international currency that would later rival the dollar and other hard currency. The Euro Zone is an open and large trading region that benefited significantly in terms of international trade because of the use of a single currency. The introduction of the Euro provided an incentive to enhance cross-border trade among the member states in the Euro Zone, wherein a single currency facilitates the access of a large market by countries using the Euro .This further reduced the risk of losses associated with fluctuations in the global currency. It is apparent that the introduction of the Euro had prospects of achieving economic integration in the continent. The impact such good economic European economies was the reduction in interest rates. Most member states embarked on reducing their interest rates as soon as the Euro Currency was in effect. This case was common among member states whose currencies were significantly weaker than the Euro; some of these countries include Italy, Spain, Ireland, Greece and Portugal . Several businesses and individuals were able to obtain financing from banks because of the reduced interest rates. Countries in Europe seized the opportunity to borrow money from banking institutions as they assumed that the interest rates would remain low for a significant period. Examples of such countries were Greece, Spain and Italy, who borrowed vast amounts from financial institutions, leading to an increase
The adoption of the single market, the Euro Zone based on a single currency, drew upon the optimal currency region (OCR) concepts as defined by macroeconomics . The concept simply stipulates that using a single currency over a large geographic region plays an imperative role in achieving economic efficiency in the region. O'Brien, (2010) argues that with proper management and robust fiscal policies, using single currency over a large geographical area has many benefits.
The other benefit of a single currency is price convergence. The introduction of the Euro was also pegged on the high possibility of price convergence on most commodities, especially household consumer goods. According to McKenzie (2006) there is no evidence of actual price convergence, as the results are to be mixed. Some commodities such as vehicles and machinery experienced some levels of price convergences. However, significant difference in the prices of fuel in the member states reduced price convergence indices.
Tourism also benefits significantly from the inception of the Euro Zone as a single market that uses a single currency. According to O'Brien (2010) tourism within the Euro Zone increased by about 7% between the years 2000 and 2004. This has been attributed to the ease of travel within the European Union member states, and the use of the single currency has further eased this.
Discuss the causes of the Euro zone crisis and consider how the crisis can be
resolved
It is evident that the recent global recession began in the United States. The credit crunch that was responsible for most of America’s economic recession spilled over into Europe. In this crisis, there was the lack of money in the economy where borrowers can no longer access credit facilities from creditors . The outcome of this recession was that governments were not able to honour their financial obligations owed to banks. This failure to honour financial obligations implies that the financial markets will rate that country low in terms of its credit ratings. The recession resulted in countries lacking financing options, and similarly financial institutions lacking sources of financing. The ripple effect is that many components of the economy that rely on credit facilities will lack sufficient finance. The effects of the recent economic meltdown included the collapse of business enterprises, skyrocketing of unemployment, and a reduction of government revenue from taxation.
Currently, the state of the Euro Zone is bleaker than ever. Big economies in the region like France, Germany and Italy are likely to report minimal growth of less that 1% each . Other nations such as Spain, Portugal, Greece and Ireland are expected to report recession. Unemployment index is at record high levels in almost four years since the advent of the world economic crisis. Some records put the unemployment index of Spain at a record of 25%, a forty-year high. The banks are also under extreme pressure with only relief coming from the European Central Bank in terms of emergency bailouts and reprieves in interest rates on debt owed. Presently, investment in the Euro Zone is at its all-time low with low investor confidence because of the unpredictability of Greece. These issues have significantly curtailed the influence that the Euro was supposed to present to the world economy.
However, saving the Euro Zone and keeping it as a single trading block is perhaps the only possible and conceivable direction. Today’s economy relies on trade and commerce with limited procedures and as less tariffs as possible. Saving the Euro will ensure that the economic policies define bigger and better trading blocks. Additionally, the process of shifting from one currency can prove to be very costly for many nations. This is due to the fact that a currency has very far reaching implications on an economy. Determining new exchange rates is perhaps the difficult process that the Euro Zone would to have to undergo.
Bun, M., & Klaassen, F. (2007). The Euro Effect on Trade is not as Large as Commonly Thought,”. Oxford Bulletin of Economics and Statistics , 473-496.
McKenzie, G. W. (2006). The economics of the Euro-currency system; Problems of economic integration. London: Macmillan.
O'Brien, N. (2010, June 7). Are Europe’s political elite on course to destroy the EU? After meeting the President, I think so . Retrieved May 15, 2012, from www.telegraph.co.uk: http://blogs.telegraph.co.uk/news/neilobrien1/100042547/are-europe%E2%80%99s-political-elite-on-course-to-destroy-the-eu-after-meeting-the-president-i-think-so/
