An Evaluation of the Advantages and Disadvantages of Adopting the Euro. a Case Study of the Uk

Topics: European Union, Euro, Central bank Pages: 6 (2063 words) Published: November 7, 2011
Title of essay: An evaluation of the advantages and disadvantages of adopting the Euro. A case study of The UK I. Introduction
An introduction of the new common currency in the Europe was announced on the first day of January 1999. At the first time, there were eleven countries, which decided to join the European Union (EU) and replace their own currency with a new one, the Euro. The Euro has been adopted as a official currency of the country members including Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, Netherlands, Portugal and Spain. In order to be accepted to join the Euro, these countries had to agree with the agreement about the price stability, long-term interest rate, government budget deficits, total government debt, exchange rate stability, and central bank independence, which will discuss more specific in this essay. At the beginning time of the Euro, there were four members of the EU still remained to do not support the Euro.

II. Body
1. Background of the Euro.
According to Szasz (1999), after the second World War, European politicians had a idea of European integration. In 1957, the treaty of Rome was signed by Belgium, France, West Germany, Italy, Luxemburg, and the Netherland, and the European Economic Community was created. In 1969, the European Monetary Union (EMU) was formed by the European Community as a milestone in the whole process of monetary integration. Unfortunately, it did not succeed.

The year 1979 was one of the most important points on the process of monetary integration in Europe. The European Monetary System (EMS) whose cores are the Exchange Rate Mechanism (ERM) and the European Currency Unit (ECU) was created. In this system, a central rate was calculated and used to find out a grid of mutual central rate. The oscillation bands at 2.25% on the side of the central rate were set for the most currencies except some weak currencies with margin of 6% (Szasz). After 1992-1993 ERM crises, the European Community decided to increase the bands to 15% in most currencies except Deutsche Mark and Dutch Guilder, which remained at 2.25% (Buckley, 1996).

Maastricht Treaty signed in 1992 was a turning point of European monetary integration (Eric, Pentecost and Poeck, 2001). The treaty divided the integration process into three stages.

The first stage was from July 1990 to December 1993. At this stage, with regard to the capital movement liberalisation, a enormous process had been made. The members decided the European System of Central Bank was combined of the European Central Bank (ECB) and the national central banks of the members. The target of this stage was single market, which concerns free movement of goods, services and capital (Eric, Pentecost and Poeck, 2001).

The second stage would happen between January 1994 and December 1998. This time was final alteration for national legal systems to adapt a new currency. The European Monetary Institute (EMI) was founded with the introduction of the new common currency. The EMI was to compose and publish operational framework for the single monetary policy. At the end of this stage, on May 1998, at the European Union summit in Brussels, the EMI was changed into the ECB, and the permanent mutual exchange rates between the currencies of the country members was broadcasted as well as the first production of Euro notes and coins Eric, Pentecost and Poeck, 2001).

The last stage of the integration process was from January 1999 to July 2002. This stage would be separated in two phrases. The first phrase was from 1999 to the end of 2001. It started with the legal introduction of the Euro in eleven country members. However, there were no coins and notes distributed at this time. In addition, the ECB has had responsibility for common monetary policy and all governments began to be issued in the Euro (Scheller, 2004). The last phrase of this...
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