The Euro

By Holly Butler & Kersha Higgins

European Union• The EU is a unique economic and political

partnership between 28 European countries that together cover much of the continent. (http://europa.eu/about-eu/)

• The EU uses a single currency which is the euro (€).• The ECB is the central bank for Europe, its main task

is to maintain the euros purchasing power and price stability in the euro area.

• The euro area comprises the 17 European Union countries that have introduced the euro since 1999. (http://www.ecb.europa.eu/ecb/html/index.en.html)

Disadvantage of a Single Currency

Countries that join the euro do not have control over their own interest and exchange rates, the ECB (European central bank) decides the overall rates for all countries in the Euroland.

•  An exchange rate is the current market price for which one currency can be exchanged for another.

http://economics.about.com/cs/economicsglossary/g/exchange_rate.htm

• An interest rate is a rate which is charged or paid for the use of money and is often expressed as an annual percentage.

http://www.investorwords.com/2539/interest_rate.html

Why don’t they have control?• They don’t have control because any country that

joins the euro hands over control of their rates to the ECB.

Why would they want control?• Countries would want control of their rates so they

could higher or lower them to encourage imports and exports. Some countries in the euro could be in recession and some could be in boom so because of this the individual countries would need to adjust their rates to suit their current stability.

Six Reasons for the Implementation of a Single Currency such as the Euro

For Businesses:• Increases cross-border trading• Increases borrowing, better planning and more investment• Better access to capitalFor Consumers:• A more competitive market• Stable Prices• More job opportunities

http://ec.europa.eu/economy_finance/euro/why/business/index_en.htmhttp://ec.europa.eu/economy_finance/euro/why/consumer/index_en.htm

Increases cross-border Trading

• A direct benefit of the euro is that, within the euro area, there is no need for businesses to work in different currencies.

• A company can buy and sell throughout this area, paying and being paid in euro.

• Not only can companies sell into a much larger ‘home market’, but they can also find new suppliers offering better services or lower costs.

• With no exchange risks and costs, cross-border trade within the euro area is encouraged.

http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm

Increases borrowing, better planning & more investment• Before the euro, volatile interest rates meant unpredictable

costs. • With the euro, inflation has come down to a low and stable

level, which also means low and stable interest rates. • Firms can borrow more and more cheaply and can invest

more confidently in the long term.• Companies can invest more in growth and new

technologies rather than saving money in reserve in case of an economic downturn.

http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm

Better Access to Capital

• Investors, such as banks, are no longer limited to local markets.

• Capital can flow more easily because exchange rate risks have disappeared and because financial market rules are being progressively harmonised – allowing investors to move capital to those parts of the euro area where it can be used most effectively.

http://ec.europa.eu/economy_finance/euro/why/business/index_en.htm

A more Competitive Market

• The euro brings price transparency to the single market.

• Consumers can easily compare prices across borders and find the cheapest price for a product or service.

• This is because increased price transparency has the effect of increasing competition between shops and suppliers, keeping downward pressure on prices in the euro area.

http://ec.europa.eu/economy_finance/euro/why/consumer/index_en.htm

Stable Prices• Inflation fell as they started preparing for the

euro and, since its introduction, has remained around 2% in the euro area.

• Price stability means that ordinary citizens’ purchasing power and the value of their savings are better protected, which helps make the future more certain.

http://ec.europa.eu/economy_finance/euro/why/consumer/index_en.htm

More job Opportunities • Since the euro was introduced you no longer

need a working visa to work in any country in Europe making it easier to find jobs abroad.

• Since the euro was introduced in 1999, more than 10 million new jobs have been created in the euro area, compared with only 1.5 million in the previous seven years.

http://ec.europa.eu/economy_finance/euro/why/consumer/index_en.htm

(Colm Kelpie, 13 Nov 2013)http://www.independent.ie/business/world/despite-brussels-calling-the-shots-were-still-hooked-on-the-euro-29748955.html

References

• http://money.cnn.com/2013/05/02/news/economy/ecb-rates/

• http://www.exchangerates.org.uk/Euro-EUR-currency-table.html

• www.googleimages.com• http://www.ecb.europa.eu/ecb/html/index.en.html• http://europa.eu/about-eu/• http://ec.europa.eu/economy_finance/euro/why/consu

mer/index_en.htm• http://ec.europa.eu/economy_finance/euro/why/busine

ss/index_en.htm• http://www.independent.ie/business/world/despite-bru

ssels-calling-the-shots-were-still-hooked-on-the-euro-29748955.html

• http://www.investorwords.com/2539/interest_rate.html• http://economics.about.com/cs/economicsglossary/g/ex

change_rate.htm