Economic and Monetary Union
The European Union is a unique economic and political union between 28 European countries that together cover much of the continent. In 1993, the European Union created a new framework for economic and monetary union, which entailed the single market, the common trade policy, a common external border and the single currency. This framework, known as Economic and Monetary Union (EMU), was designed to facilitate and promote a process of economic integration, including fiscal and monetary policies. The objective of EMU is to create a modern, open and dynamic economy that can withstand the challenges of global markets.
The fulfilment of economic and monetary union requires the adoption of many measures that fall within the competence of individual member states, such as, the establishment of common exchange rate, a common monetary policy and fiscal policy, a common currency and financial market policy, as well as the establishment of a common statistical system to ensure economic and fiscal coordination. In addition, the member states must agree on the division of responsibilities between different EU institutions and countries.
Since 1999, EMU has been effectively operating in 11 Member States and the euro was officially introduced as their legal tender in 2002. All other EU Member States were required to at least strive towards joining the euro area.
The main purpose of the Euro is to create a single currency for all Eurozone members, thus removing trade barriers and facilitating cross-border investment. By making all transactions in a single currency, the costs of cross-border transactions are reduced, making it easier and cheaper for firms to do business across national borders. Through the introduction of the euro, prices in the participating countries also become comparable and it becomes difficult for firms in one country to charge a higher price for the same good or service in another country.
Furthermore, the single euro area market provides a larger number of consumers, which increases the potential demand for products. This in turn implies higher profits for firms. Furthermore, the competition in the single euro area encourages firms to specialize, gain economies of scale and to increase efficiency. As a result, firms ultimately become more competitive, creating a better environment for businesses to grow and expand.
The single euro area also creates greater financial stability. By having the same currency and likely interest rate, monetary policy can be coordinated by the European Central Bank (ECB). This helps to reduce exchange-rate risk and gives investors greater stability. Additionally, having a single currency across the euro area makes it easier to compare different financial products, thus encouraging investment and helping to ensure financial stability.
Despite the advantages of the common currency, EMU has recently been subject to criticism as well as economic stress. The economic and financial crisis of 2008 had a particularly severe impact on the Eurozone and triggered a process of deep economic adjustment, leading to rising unemployment, economic recession and government spending cuts. However, it should be noted that the Eurozone has managed to respond effectively to the crisis, by taking a proactive approach in the face of it and implementing a series of measures to help restore financial stability.
In conclusion, the establishment of Economic and Monetary Union in Europe has greatly contributed to a process of economic integration in Europe, by removing trade barriers and creating a single currency. This has benefited firms and consumers alike, by providing a larger market and increased financial stability. Furthermore, in the face of the recent economic and financial crisis, the Eurozone has managed to respond successfully. Despite the criticisms, EMU is likely to continue to promote growth and stability in Europe in the long term.
