The Challenge of a Single Currency for Europe

The purpose of this essay is to examine the many challenges that confront the European Union (EU) in the aftermath of its adoption of a single currency unit, the euro. A brief review of the history of the development of the EU will be provided to establish the background in which the EU developed a single current. The challenges of such a currency regime will be analyzed with respect to trade issues, security markets and national fiscal matters. It will be argued that many problems associated with the launch of the euro remain unresolved.

As early as June 1940, Britain's Winston Churchill offered a proposal for a Franco-British Union to the French Government, arguing that an indissoluble union of the two countries would be ideally situated to "repair the devastation of war," to "provide for joint organs of defense, foreign, financial and economic policies," and to "concentrate its whole energy against the power of the enemy, no matter where the battle might be (Freymond, 1964, 6-7)." This effort, despite its lack of success, indicates that even before World War II had ended, some European leaders were giving thought to the potential for developing a mechanism for European activity. Thus, the original impetus for the founding of what would become the EU was the desire to rebuild Europe after the disastrous events of World War II. Presented as Appendix A is a chronology of major events leading to the formation of the EU.

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s built around the strong and independent European Central Bank, whose constitution is an improved version of that of the German Bundesbank. The setup all but guarantees that the euro will be a strong currency. Countries which have traditionally dragged their feet in Europe's march toward "ever closer union"--the U.K., Denmark, Sweden and Greece--could well be part of EMU even before the new paper money circulates in 2002. Such concerns proved somewhat valid. Begg, Eichengreen, Halpern, von Hagen, and Wyplosz (2003) noted that shortly after the euro was adopted by some, but not all of the EU members, a problem arose with respect to potential ACs - Accession Countries - planning to or working to join the EU. Such countries, as described by these authors, often represent transition economies that were shielded from capital movements by capital controls tat have not as yet been dismantled and by autonomy over the choice of monetary and exchange rate policy. Accession to the EU and inclusion in the euro regime means for these countries that such protections will no longer be available. As Begg, et al (20030 commented, this may make it difficult for ACs to enter into full participation in the EU. Membership in the EU is d

Category: History - T