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"Macroeconomics"
Macroeconomics
Author:
Alyscia Yellowman
There are numerous reasons for introducing a common currency. For most EU countries today, the majority of international trade is with other EU members. The euro-zone will become an area of monetary stability in Europe. The new currency removes exchange rate risks from the internal market, cuts the costs of transactions and encourages firms to trade across national borders. It also forces EU states to adopt responsible economic policies that contain inflation and increase real living standards.Currency unions have collapsed in the past. There is no guarantee that EMU will be a success. Indeed the Euro may be a recipe for economic stagnation and higher structural unemployment if the European Central Bank pursues a deflationary monetary policy for Europe at odds with the needs of the domestic UK economy.

It is quite possible that the monetary union will not be sustainable; countries that discover themselves to be in difficulty may cancel their membership and re-establish an independent currency and an inflationary monetary policy. The example of Ireland's departure from the sterling currency area suggests that leaving a currency union is beneficial, rather than joining one.

In theory, a currency union can offer economic benefits – but only under fortunate circumstances. The lack of exchange rates removes a very effective mechanism for adjusting imbalances between countries that can arise from differential shocks to their economies. History demonstrates that well-chosen devaluations can help an economy out of difficulties – the UK should retain this option.

In a recession, a country can no longer stimulate its economy by devaluing its currency and increasing exports.

The EMU is a step in a process that will cut Europe off from the rest of the world. It is bureaucratically motivated – a further advancement for European policy makers.

Entry would mean a permanent transfer of domestic monetary autonomy to the European...

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essay on Macroeconomics
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Added:
12/22/2011
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