The Euro

Paper Summary:

The major issue facing the euro as a single currency is the potential problems that E.U. nations may face in absorbing future economic shocks. The paper shows this is largely due to the fact that unlike most monetary unions, the euro will not be governed by a central fiscal policy since most member states are reluctant to give up control of taxation and expenditure policies. The paper shows that to compensate, euro countries are bound to observe fiscal guidelines laid down by the Maastricht Treaty of 1992 and the Stability and Growth Pact drawn up in 1997.

From the Paper:

"Efforts by the European Central Bank to guide the fortunes of the exchange rate of the single currency can also adversely affect some individual countries, as happened in October 2000. Though the ECB's decision to increase interest rates was supposedly aimed at countering the effects of oil price increases and a weak euro, it backfired when the currency weakened even further. This, at a time, when the corporate sector in many EU member states were issuing profit warnings that should have actually called for a softening of interest rates (Guardian Unlimited Web site)."

More papers on The Euro:

• Essay # 90954 : "The Euro Currency Markets"
• Analytical Essay # 130495 : "Impact of the Euro on U.S. Economic and Monetary Policy"
• Essay # 65355 : "Britain's Currency Debate Over the Euro"
• Essay # 36935 : "Introduction of the Euro"

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