Europe In 2010 Essay Research Paper Economic

Europe In 2010 Essay, Research Paper

Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people,

goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is

underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound

economic policies and to coordinate these policies very closely.

As trade between the EU Member States reaches 60% of their total trade, EMU is the natural complement of the single

market. This market will work more efficiently and deliver its benefits more fully with the removal of high transaction costs

brought about by currency conversions and the uncertainties linked to exchange rate instability.

EMU and the economic performance of the Euro area will have their largest external effects on neighboring economies in

western Europe and on developing and transition countries with important trade and financial links to Europe, including

countries that link their currencies to the Euro. Among emerging market economies, those likely to be most affected are the

transition countries of the central and Eastern Europe and the Baltics.

The global environment has been favorable in a number of respects for the transition to EMU and the achievements of its

objectives. The strong demand for euro-area exports from industrial countries at more advanced stages of the business cycle

and the depreciation of the currencies of euro area countries over the past four years fostered a strengthening of growth in the

euro area and helped to offset the effects of the Asian crisis.

There are also challenges for EMU in the global economic environment:

The crisis in Asia and other emerging market economies could produce adverse spillover effects and make the monetary

policy more difficult to carry out.

The continuation of the crisis could result in weakening of the external demand, which, in turn, could dampen confidence

and domestic demand.

The financial market volatility could increase the uncertainty in assessing the economic indicators.

The economic crisis in emerging markets could influence the commercial banks in the euro- area to make substantial

provisions for non-performing loans.

THE FUTURE OF EURO

It is, of course, impossible to predict the properties of the behavior of the exchange value of the Euro. With regard to broad

trend, it seems likely that the Euro will tend to appreciate against the U.S. dollar and pound sterling over the next few years, but

depreciate against the Japanese yen when Japan.s economic recovery begins. The United Kingdom and the United States have

reached relatively advanced stages of their cyclical upswings, with resources more fully utilized than in the euro area, the Euro.s

initial value comparing to the pound and the U.S. dollar can reasonably be considered to be below its medium-term

equilibrium. As the economic recovery in Europe proceeds and the growth in the U.K. and U.S. economies slows, the Euro

will most likely appreciate against those currencies. On the other hand, Japan economy remains in the critical position. The

resumption of moderate growth will lead to a recovery of the yen. Thus Euro is expected to depreciate against the yen over the

next few years.

According to some widely made predictions:

Euroland’s capital markets, from equities to corporate bonds to municipal finance, will grow exponentially in coming

years as the removal of cross-border currency risk drives pan-European markets.

The Euro will stand alongside the dollar as the second-most-important currency in the

world, reflecting its coming role in global trade and finance as well as its common usage by 290 million Euroland

citizens.

The new central bank has been given the independence to pursue price stability as a

primary objective. This feature will affect the credibility of the ECB positively and thus the investors would see the

Euro as a stable store of value in the next decade.

Once the single currency takes effect, the national central banks of the euro area will

reduce their international reserve holdings. Trade within the euro area will be denominated in a single currency and

will no longer need to be backed by international reserves. Estimates of the EMU countries. resulting surplus of

international reserves range from $50 billion to $230 billion.

THE SCENARIO THAT MOST LIKELY TO HAPPEN IN EUROPE

The scenarios that are presented in the European Commission Forward Studies Unit.s report regarding the economic situation

in Europe towards the year 2010, reflect the possibilities rather fairly. I personally find the report an accurate study containing

precise predictions. Out of the five futures for Europe, I think the Scenario No.3 seems the most logical and possible theory to

occur.

The reason I chose this particular scenario is because it focuses on the following issues:

Transformation of the public se

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