Question

Discuss the benefits and problems associated with the creation of the Euro.

Answer 1

The benefits associated with the creation of Euro : that is a single currency followed all along the Eurozone;

• Creation of the Euro has brought exchange rate stability and it provides efficient allocation of resources.
• it stimulates trade activities, as it allows free movement of goods
• it reduces costs of transfer of currency, as it facilitates currency transfer because a person entering the euro zone does not need to exchange its currency for euro any more. It increases price transparency.
• it increases competition amongst the firms so now the firms have to be more efficient to survive.

Problems:

• A single exchange rate brings problems of following the same monetary policy. If one country is suffering recession rest all are booming, increase in interest rate for the other countries will worsen the situation for the country which is in downturn.
• Moving to a single currency, will have short term costs associated like new money getting printed, vending machines to make new coins.
• Even after bringing countries under a single blanket. Different policies affect countries differently. Some policies may be beneficial to all, but detrimental to some kind of economies.