Question

Discuss the reasons for the adoption of the euro by the European Union (EU) members
and state the conditions for entry into the economic and monetary union (EMU).

Answer 1

Ans) Several reasons lead to the adoption of the euro by the members of European Union and finally on January 1, 1999 a new currency known as the Euro was introduced. which was previously and originally used as an overarching currency which only served the purpose of exchange rates amongst the countries within the union. Whereas the member nation continued to make use of their local currency in their own country.

But after the introduction of euro, it did not take much time for it to establish it's place as a daily currency replacing the domestic currency of several member nation's. But with this, there are several members who have not yet adopted euro as their currency.

Numerous advantages including, economic benefits to the citizens of member nation's, infrastructure was strengthened, travelling proved to be much more easier and flexible to the removal of exchanging currency everywhere, and the most important one being the removal of currency risks from European Trade. Citizens can easily identify the real price of a product/commodity, without having to make the use of a currency convertor, thus encouraging transparency of prices and encouraging trade and commerce. Thus proper allocation and use of labour and capital was seen over the years due to the adoption of euro

Also, another benefit of the adoption is that this currency is managed by European Central Bank(ECB), trying to balance the needs and demands of the member nation's, it is this highly insulated from political pressure from trying to manipulate currency in favour of a particular nation.

With this, the disadvantages as some of the nation's put forward cannot be ignored, out of which one would be the tilting of system in favour of large nation in comparison to the smaller ones and so on. Even though the negatives may be true in their own place, but the advantages have have their own importance which outweigh the disadvantages. Thus the above summary tries to give us a brief explanation of reasons for adoption of the euro by the EU.

Economic and monetary unit is derived on the basis of progressive economic integration of EU. The Delors report of 1989 set out to introduce EMU in three stages: Stage One: 1 July 1990 to 31 December 1993, and Stage Two: 1 January 1994 to 31 December 1998 thus Stage Three: 1 January 1999 and continuing, in which different countries at different stages became a part of the EMU.