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Euro on the Verge of (Dis) Integration?


Code : ITF0021

Year :

Industry :General Business

Region : :Europe

Teaching Note:Available

Structured Assignment : Available

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Conception of Euro On January 1st 1999 Euro was created under the Franco-German initiativewhen the eleven EUcountries10 established the conversion rates between their respective national currencies and the Euro. The community decided to launch the monetary union with the objective of stabilizing the exchange rates, reducing inflation, preparingmonetary integration and converging into a singleEuropeanmarket.Advantageswere expected in terms of benefits of singlemarket, practical benefits for citizens, single financialmarket and a boost to Europe’s international role.However, Britain, amember of EU, exercised its right and opted to stay out of Euro, expecting a better off business community...

Euro, the Emerging Currency Though launched as a joint currency of only EU nations, Euro was quite successful in expanding its base outside EU by being circulated as national, official or de facto currency. Several other countries linked their currency to theEuro through different types of agreements like ERM II, bilateral exchange rate mechanism and unilateral exchange rate mechanism (Exhibit 1). Euro’s acceptance depended on transaction costs13 of using Euro in foreign exchange and securities market...

Emerging Imbroglio On May 29th 2005, a referendum was held in France and the Netherlands for ratifying the European Constitution. Though France and theNetherlands had signed the treaty, the outcome of the referendumwas a ‘no’to the EU’s constitution. Following this,ministers in Italy and Germany are speculating the future of the Euro and are advocating a return to their respective currencies Lira andMark23 . According to the Euro-observers, the ratification of the EU’s constitution is a political issue whereas the strength of the currency is an economic one. However, some analysts believe that Europe’smonetary union could not survive without a political union...

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The Economic Implications After its launch, initially Euro fell in value steadily, and then began recovering against Dollar eventually overpowering the latter in December 2004. Economists have pointed that Asian currencies remain more or less pegged to the Dollar directly or indirectly, forcing the Euro to stay high against the weak Dollar. This has created worries for EU exporters. Individual countries in the EU are complaining about the Euro as they face various economic implications...

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