Whether the Euro in the Near Future Will Fail or Visa Versa - Essay Example

Last years there were cardinal changes in world financial structure and it was generated new 'currency geography'. The major display of the given process is occurrences and strengthening of positions of the uniform European currency in the international financial markets. For the first time there has come a competitor of US dollar - the euro, capable to challenge its status of dominating currency of the world. Before introduction of euro there was only one European currency, the DM, played an appreciable role in the currency markets of the world, however outside of the Europe it had no prospect to strengthen and expand its position. To reflect on the future of the European currency, it is necessary to consider first steps to the European Monetary Union; the reasons of occurrence, problems of creation and functioning of new model of the European currency system. "In its 1990 White Paper, the European Commission argued that deeper economic links would be a major goal of EMU, and many observers accept the view that the elimination of exchange rate risk and the lowering of transaction costs will indeed deliver more integration" (Wyplosz, 2001: 9). It is necessary to understand what we should expect from euro in the future, whether it can make a competition to dollar in the world currency markets, and may be even to replace it as a reserve currency in many countries. Interest to the given questions is caused by the point that introduction of new currency has no analogues not only in the Europe, but also all over the world. The given event needs to be considered as movement aside bipolar world currency system that creates preconditions for redistribution of forces on a global scale. On January, 1st, 1999 within the limits of the European union (EU) are created the European Economic and Monetary Union and the uniform currency for the member-states of European Economic and Monetary Union named euro, which during the certain period of time has replaced national currencies of the corresponding countries. This event is natural, rather important and in the certain sense the closing stage in the development of the West-European integration process, the beginning to which was put with the Treaty of Rome signed on March, 25th, 1957 on creation of the European Economic Community ("the Common Market") in structure of six countries: France, Germany, Italy, Belgium, Netherlands, and Luxembourg. Since then the process of integration in the Europe, despite of considerable difficulties and contradictions in general successfully developed as in breadth (with 6 up to 15 countries), and in depth (in direction to an overall objective - to formation of uniform economic space, in which it would be carried out, irrespective of national borders, free movement of the goods, capitals and people, and in which would operate equal for all subjects of economic activities conditions of competition). The principle of the Common Market, on which the European Economic Community was based, assumes for the free movement of the goods and the capital if not the general currency, but at least significant stability of rates of exchange. Instability of rates of exchange did conditions of competition uncertain and for this reason destabilized trade relations. Besides, stabilization of rates of exchange is necessary for coordination of economic policy of the Union member-states. EMU, the decision on which creation was accepted on December, 5th 1978 has started to operate on March, 13th, 1979. It included Germany, France, Holland, Belgium, Denmark, Ireland, and the Great Britain, Italy, Greece, Spain, Portugal and Luxembourg have joined later. EMU establishes the base for measuring costs, intended to become money - European Currency Unit (ECU), and a system of stable, but ordered rates of exchange between the countries of European Economic Community. "The rapid development of the ECU in private markets had been a surprise. By March 1986, European banks held ECU assets worth 61 billion and ECU bonds of 7 billion. Private banks also had established a clearing system and made ECU payments as if it was a normal currency" Collignon, S., & Schwarzer, 2002: 43). ECU has become the central element of the European currency system. It has been defined as a kind of basket of currencies. The weight given to each currency reflected a relative share of the various member-states in gross national product of the European community and in trade inside of it, and also their contribution to mechanisms of short-term currency support. Within the limits of EMU ECU has played the role not just a monetary unit. On December, 5th, 1978 on the European Council in Brussels has been stipulated the movement to the full and complete use of ECU as a reserve means and means of payment. ECU contained (though not completely) characteristics of the real currency. ECU aspired to become the real currency inside of the European Economic Community: currency of payments, investments and promissory notes. This evolution could reach the end only in case that the European currency bodies would make necessary decisions for its transformation into a high-grade currency and would establish communication between official use of ECU and its use in private sphere. However ECU it had not taken the present place of euro. The majority of member-states have spoken against the introduction of the uniform currency ECU, having seen in it a kind of interrelation with an ancient French coin. Therefore, in order not to give a superfluous occasion for interethnic disputes, it had been decided to choose the neutral name for the currency, which would be appropriate for all member-states. As a result it had been made a decision on introduction of the uniform currency under the name "euro". The Treaty providing stage-by-stage promotion to the Currency Union is signed by 12 countries in Maastricht, in February, 1992, ratified and has come into force since November, 1st, 1993. In January, 1994 the European currency institute in Frankfurt am Main, which overall objective is a preparation to the organization of the European System of Central Banks (SCB) and to the issue of the uniform currency euro has been created. In December, 1995 at session of the European Council in Madrid the program of euro introduction, which has been developed and concretized at session of the same Council in Dublin in December, 1996 has been accepted. These and a number of other decisions, accepted by the executive body - Commission of the European Communities, provide the certain criteria for the member-states, established as a "path" to the membership in the currency union. "First, the Maastricht convergence criteria were strongly supported by Germany and France" (OECD Staff, 2005: 86). The euro becomes independent full monetary unit. At this stage it existed only in the non-cash form. Economic entities have begun calculations and operations in euro. The companies most connected with the foreign trade, European and international ones have preferred to transit as soon as possible their operations in euro. The state bodies continued active preparation for transition to euro, and also carried out an information supply of this preparation. At the given stage national currencies and euro functioned in parallel. The second, the final stage of the third phase of transition to the currency union of EU became full transition to euro. After December, 31st, 2001 all accounts, which until that time were expressed in national currencies of the participating countries, began to be converted at official rates in euro. Since January, 1st, 2002 during the certain term old national banknotes and coins could be used with euro. "Six months were allowed for national currencies to be withdrawn from circulation" (Ingham, 2004: 230). After euro became the only lawful payment means in the corresponding countries. Important the question is whether the euro in the near future will fail or visa versa To find the answer it is necessary to understand what the purposes of EMU are. As a matter of fact, there are three purposes. The first one is to force the European economy to work more effectively. The currency union as any other element of integration is the element forcing to work the mechanism of natural selection. The second task put before the economic and currency union is to strengthen positions of EU in the world in conditions of the new changed geopolitical situation, when there is no bipolar system of the world, when there is no socialist system and to make so that the European Union could become the second largest support of the modern world order. To make so that the European Union could, having strengthened its market and having strengthened discipline inside of the union, accept new members and with this heavy "cargo" to be, nevertheless, one of grounds of the modern world. Otherwise, if not the uniform currency if not uniform monetary space, the European Union would continue to remain group of the states and never basically could be the formation, capable to compete or make equal partnership with the USA. The third reason is to raise a degree of internationalization of the European currency. If to speak in simple words, to make uniform European currency of much stronger, than there were before separate currencies of the European countries, to expand the space, on which the uniform European currency will operate, to improve the mechanism of exchange rate formation, and thus, to allow the European Union to participate actively in forthcoming reform of the international currency system. Works cited: OECD Staff. (2005). Euro area. Paris, OECD. COLLIGNON, S., & SCHWARZER, D. (2002). Private sector involvement in the Euro: the power of ideas. New York, Routledge. INGHAM, B. (2004). International economics: a European focus. Harlow, England, Financial Times Prentice Hall. MANKIW, N.G. & TAAYLOR, M. (2006). Economics. London: Thomson Learning. [Mankiw & Taylor] WYPLOSZ, C. (2001). The impact of EMU on Europe and the developing countries. Oxford [England], Oxford University Press. Read More