Will The Euro Come To An End Economics Essay

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This assignment aims to reply the instance survey -Will EURO come to an terminal based on the picture provided and other relevant beginnings. It brings forth apprehension of the causes of the EURO crisis utilizing the theory of international flow of financess. The assignment farther explains the impact of the EURO crisis on the UK economic system and the current pecuniary system. It besides provides a contemplation of the person on the presentation given on the same subject by rectifying errors with the aid of other presentations and mini statements.

Answer TO THE CASE STUDY

Will the EURO semen to an terminal?

The hereafter of the EURO currency is a major menace to the fiscal markets of the European Nations every bit good as to the full universe. Hence it necessitates the importance of our focal point to be thrown on the assorted facets associated with the EURO in order to hold a better understanding about the currency ‘s behavior. It will besides assist us to happen the best solution by analyzing assorted positions refering to the subject.

Q1: WHAT EXCHANGE Rate SYSTEM DOES EURO ADOPT?

Under the Bretton Woods government, the pecuniary policies of states in Europe were determined by a demand to keep the dollar nog. It was the incompatibility of the domestic pecuniary policy demands which led to a dislocation of the system in the early 1970s. ( Lorenzo Bini Smaghi, Member of the executive board of ECB, 2007 )

The fixed exchange rate system dislocation resulted in the constitution of the European Monetary System ( EMS ) in 1979 among the member provinces of the European Union, formed based on the Treaty of Rome in 1957. In the ulterior phases, UK and Denmark opted out of the European Union due to pecuniary conditions. Italy besides left the European Monetary system due to its inability to remain within the exchange rate bounds.

This lead to The Maastricht pact of 1992 which laid down 5 standards for the EMS member provinces in order to choose for a individual currency, the EURO ( Honeygold D, 2012 ) .Thus 11 member provinces agreed to follow a flexible exchange rate government and introduced the EURO as their accounting currency on 1st January 1999. Euro was issued in physical signifier such as bills and coins from 1st January 2002. Since so EURO is the official individual currency of 17 member provinces at present. The formation of EURO brought away assorted benefits as mentioned below to the member provinces. ( European Commission, 17/10/2012 )

Contributes to low rising prices

Encourages sound public fundss

Brings efficiency through individual market

Additions monetary value transparence

Eliminates currency exchange costs

Facilitates international trade

Gives more power to the EU in the universe

Better protection against external economic dazes

Presently EURO is being used by 330 million EU citizens and is the 2nd most traded currency after the US Dollars.

Q2: Explain THE CAUSES OF EURO CRISIS USING THE THEORY OF INTERNATIONAL FLOW OF FUNDS.

The theory of international flow of financess helps us to place and supervise the factors such as:

Inflation,

National income,

Government limitations,

Exchange rates,

This influences a state ‘s economic system due to its imports and exports. An apprehension of the economic system will besides assist us to happen the causes of the EURO crisis. ( Madura J, 2000 )

The acceptance of the individual currency -EURO worked good for the economic systems as it helped to turn economically and faster through its cardinal benefits such as:

Freedom of trade with few limitations,

Momentum of free endeavor,

Exchange rate hazards,

Elimination of currency transition. ( Madura J,2006 )

The tabular array below besides explains the addition in imports, exports and foreign trade of EU member provinces after their acceptance of EURO as their individual currency ( Elsevier, 2009 ) .

1-s2.0-S0377221707012386-gr3.jpg

Beginning: National Institute of Statistics ( NIS )

The addition of International flow of financess had an inauspicious consequence through which several EU states lost control of their finance. They started to borrow every bit good as spend more during their clip of prosperity particularly after the 2008 fiscal crisis. Therefore overspending is the major cause of the EURO crisis ( Kelly, 2011 ) . We can besides happen Hugh Hendry saying the same position in the picture provided in the instance survey.

The issue of low hazard premiums on involvement rates of authorities debt by the European Central Bank ( ECB ) to states like Greece, Portugal, Ireland, Spain and Italy have encouraged their overspending ( Kelly,2011 ) .As such this has left these states with immense shortages in which Greece being the most affected with 130 % of GDP as authorities debt.

An article released by BBC NEWS on 19 June 2012 on the subject ‘EURO ZONE CRISIS EXPLAINED ‘ gives us a clear position on how Germany is safer than the other member provinces. By holding historical low involvement rates, Germany is considered to be a safer market. This has given Germany an upper manus and therefore states like Greece and Spain are dependent on it to avoid bailouts.

The other major causes for the EURO crisis can be highlighted from the positions of the talkers take parting in the picture.

Notes FROM THE VIDEO:

Prof. Stiglitz quotes that Greece has 130 % of its GDP as debt with a existent clip involvement rates of 1 % -2 % . This is the unreal low involvement rates allowed by the ECB as mentioned by Kelly, 2011. We besides find Carlos Casajuana saying that even though Spain has 66 % of GDP as debt, it is ready to undertake the economic downswing which is non possible in the instance of Greece. He states the cardinal issues for the crisis to be the jobs of unemployment and debt.

We can besides happen that corruptness is another cause for the crisis through Prof. Stiglitz ‘s statement about the new authorities and its transparence steps. Prof. Stiglitz and Carlos Casajuana insist on the demand of political integrity and societal unity to prolong from the effects of the EURO crisis. On the whole the crisis has been caused chiefly because of the divergence of the EU member provinces from the standards of the Maastricht Treaty of 1992 with the cardinal factors being:

Inability to pay debts,

Global recession,

Adverse effects of the benefits of individual currency acceptance,

Lack of political integrity,

Social jobs like unemployment.

Q3: WHAT DOES EURO CRISIS MEAN FOR THE UK?

The United Kingdom even though non being a portion of the Euro Zone will be affected by the EURO crisis. UK conducts 40 % of its trade in the Euro Zone markets. Hence the failing or instability of these markets will ensue in a immense loss to the UK markets ( Cummings, 2012 ) .

The EURO crisis has besides lead to a crisp addition in the adoption costs for UK ‘s houses and it is besides considered that this might take to another recession for the UK.It has besides brought the UK Bankss to a hazardous state of affairs as they have lent immense sums to states like Greece to pay off their debts ( Inman P, 2012 ) .

Q4: WHAT IS THE IMPACT OF EURO CRISIS TO THE CURRENT INTERNATIONAL MONETARY SYSTEM?

The current international pecuniary system has a managed float government. This system is chiefly characterised by flexibleness and adaptability. But this is besides the failing of the system due to its exposures such as unsustainable growing theoretical accounts and instabilities. These are affected to a great extent by the series of fiscal crisis ( Dorrucci E and McKay J, 2011 ) .

The impact of the EURO crisis on the current pecuniary system calls for a new pecuniary system government in order to convey stableness in the economic system. The coming of the euro has created ideal conditions for a resurgence of planetary pecuniary cooperation. Thus the creative activity of fiscal stableness of following a fixed exchange system will assist in ‘SAVING THE EURO ‘ .

REFLECTION REPORT

Strength:

The instance survey has foremost helped me to understand the topic in item. It has made me to pass more clip in understanding the constructs non merely to those refering to the instance survey such as exchange rate systems, theory of international flow of financess, state analysis and international pecuniary system but besides to those discussed in the faculty. It has improved my assurance degree in managing this faculty.

Failing:

I found that my presentation lacked grounds of beginnings to back up my points by seeing the other presentations. I besides found that I lacked in believing loosely about the topic.

Opportunities:

Beginnings were available and accessible rapidly through UWIC beginnings, Internet and the library.

Menace:

The new system and standards of markers was a menace to understand before doing the presentation. I took me clip to accommodate to the new system as an International pupil.

Decision

This assignment has helped me greatly to understand the faculty and construe the information. Mini statements and presentations of the other pupils have helped me to rectify my errors of the presentation like to include survey on the states involved, usage of graphs, etc. and produce an improved reply through this assignment.