Research Paper, Macro and Micro economics- Euro

Research Paper, Macro and Micro economics- Euro
[Student Name’s]
This paper focuses on the history of Euro, the purpose of Euro and the fluctuations of
Euro against the value of the U.S. dollar. Moreover, it looks into the challenges facing
common currency in the European Union. In early twentieth century after devastating and
demoralizing wars, leaders of European Economies focused on establishing sustainable peace
to unify economically in the long term perspective. In 1957, Rome Treaty was established
with the aim of unifying these economies. Under the treaty, European Economic Community
was formed. In 1969, European Economic Community commissioned a team to study and
establish a blueprint for monetary and economic union. The team was led by the prime
minister of Luxembourg. The policies were to be implemented by 1980. However, in 1970
there was a severe disruption in global currency market.
In the year 1989, the European leaders renewed the unification process. In this case,
Delors proposal was established. The project led to the introduction of European Central
Bank. This proposal was greatly accepted and integrated into the conceptual framework of
Euro as Europe Treaty (Dominguez, 2006). This proposal was effectively implemented and
resulted to adoption of Euro currency by eleven countries in 1999. The membership has
grown to seventeen economies.
The main objective of establishment of Euro currency is to maintain stable prices. In
this context, stable prices are paramount to the development of economic welfare and growth
opportunities. The mission of European Central Bank is to work with other European
Economies National Central Banks, to focus primarily on maintaining policies that support
pricing stability. Moreover, pricing stability in this context is defined as an annual increase
in the Harmonized Index of Consumer Prices of less than two percent (Balasundram, Tony,
and Hadley, 2011). Effective maintaining pricing stability, on the hand, ensures that the Euro
strengthens against other global currencies. Therefore, one of the primary goals of
establishing the Economic and Monetary Union was to control pricing instability within the
European Union. However, the effectiveness of the Euro depends on the independent of
European Central Bank.
Therefore, use of Euro currency offers many advantages. These advantages include
elimination of fluctuating exchange rates and exchange costs. This is because it is easier for
firms to carry out trade across the border, and the economy is more stable. Moreover, the
economy grows, and consumers have more choice. Euro currency also motivates travel and
shopping of people in other economies. At global perspective, the euro gives the European
Union more influence as it is the 2
most important international currency after the US dollar
(Kaminsky, 2008).
In the year 1999, the Euro was at US $1.18. In June 4
, 2010, was Euro at US
$1.1971. This represents an increase of 1.4 percent over more than 10 years. The Euro
reached a high of about US $1.60 and a low of just over $0.82 in this period. However, it is
back where it started. Moreover, there is divergence on the level of inflation in the region.
The mean of the level of inflation in the European Union is 2.5%. On the other hand, the
usage and visibility of Euro had increased significantly from when introduced in 1999. In a
half, a decade, the involvement of Euro in global transactions beyond the European Union
improved from 20.8 % to 27.7 % (Kamps, 2006). However, the currency was by far
outshined by the U.S. dollar in the year 2004. In this time, the U.S. dollar engaged in at least
one part of a global transaction 88.7 percent of the time. In comparison, the euro was
involved in only 37.2 percent of all transactions (Goldberg, Engel, and Portes, 2005).
The challenges facing common currency in the European Union is the absence of a
coordinated fiscal policy. Fiscal policy in European Union is not centrally determined, like it
the case of United States. Therefore, in the case of European Union, each of the 17 member
Economies establishes its own governmental revenue and expenditure directives. However,
these provisions limit spending in excess of three percent of annual GDP. Moreover, the
economies restrict to total debt to 60 % of GDP. On the other hand, this may the ability to
provide public services and build public infrastructure under Stability and Growth Pact.
These policies result to barriers of growth. Therefore, in the end weaken the credibility of
Euro. Moreover, this undermines the policies of European Central Bank; hence difficulty in
accomplishing the objectives of European Central Bank (Pelagidis and Desli, 2004)
Balasundram, M., Tony, M. and Hadley, L. (2011). The Euro's Future: A Ten-Year
Projection, International Business and Economics Research Journal, 10 (7) 2-9.
Dominguez, K. (2006). The European Central Bank, the Euro, and Global Financial Markets,
American Economic Association Journal, 20 (4) 67-88.
Goldberg, L., Engel, C, and Portes, R. (2005). Trade Invoicing in the Accession Countries:
Are They Suited to the Euro? NBER International Seminar on Macroeconomics, 357-
Kamps, A. (2006). The Euro as Invoicing Currency in International Trade.
Retrieved May, 02 2013, from£'scpwps/ecbwp665.pdf
Kaminsky, G. L. (2008). Leading Indicators of Currency Crises, Staff Papers International
Monetary Fund, 45 (1) 1-48.
Pelagidis, T. and Desli, E. (2004). Deficits, Growth, and the Currency Slowdown: What Role
for Fiscal Policy? Journal of Post Keynesian Economics, 26 (3) 461 - 469.

Place new order. It's free, fast and safe

550 words

Our customers say

Customer Avatar
Jeff Curtis
USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Customer Avatar
Ian McGregor
UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Customer Avatar
Shannon Williams
Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."

  • 5-paragraph Essay
  • Admission Essay
  • Annotated Bibliography
  • Argumentative Essay
  • Article Review
  • Assignment
  • Biography
  • Book/Movie Review
  • Business Plan
  • Case Study
  • Cause and Effect Essay
  • Classification Essay
  • Comparison Essay
  • Coursework
  • Creative Writing
  • Critical Thinking/Review
  • Deductive Essay
  • Definition Essay
  • Essay (Any Type)
  • Exploratory Essay
  • Expository Essay
  • Informal Essay
  • Literature Essay
  • Multiple Choice Question
  • Narrative Essay
  • Personal Essay
  • Persuasive Essay
  • Powerpoint Presentation
  • Reflective Writing
  • Research Essay
  • Response Essay
  • Scholarship Essay
  • Term Paper
We use cookies to provide you with the best possible experience. By using this website you are accepting the use of cookies mentioned in our Privacy Policy.