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In: Economics

The European Union promotes the benefits of the euro as a common currency for the 19...

The European Union promotes the benefits of the euro as a common currency for the 19 EU nations that have adopted it. What are possible disadvantages of using a common currency?

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Expert Solution

THE POSSIBLE DISADVANTAGES OF USING A COMMON CURRENCY

Even the European Union promotes the advantages of using euro as a common currency, there exists some disadvantages. These are listed below;

1] One of the major problem faced by the nations with the unification of euro as a single common currency, is that the nations will miss their own autonomous monetary policy. The nations will lost their ability to put forward the monetary policies which is suitable for the nations. The Central Banks of the nations will lost their ability to decide the interest rate and other thing like that. But it will become a great problem when the nations will face a great economic crisis, the nations can't adopt their own monetary policies.

2] Another problem associated with this issue is the unequal development within the euro area. The European Central Bank argue the integration of the economies of these nations. But in fact there will evidence disparities among the nations on their development and it is not equally in all zones. In such a situation it will certainly need to the fact that, some nations will achieve progress in great extend than the other nations.

3] And some economists also argue that the euro does not means a single area. Hence the policies of the European Central Bank { ECB }, fails to address the problems of each unique member of the union when they formulate their policies.

4] Some of the common policies adopted by the nations will be harmed by some countries. One of the example is that easier access to the loans with low interest rate has resulted in the increase of the public debt of such nations. And this has negatively impacted their economic progress and development.


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