Document Type

Article

Publication Date

1-1998

Keywords

Euro, EMU, monetary plan

Abstract

On January 1, 1999, fifteen independent nation-states of Europe are set to relinquish their national currencies in favor of a single European monetary unit, called the euro. While the origins of the European Union (EU) (formerly referred to as the European Community) date back to the Marshall Plan, the inception of the euro occurred in February of 1992 with the passage of the Treaty on European Union, or Maastricht Treaty. Though the prospect of a European Monetary Union (EMU) has attracted many observers from the economics, finance, and business communities, the history of the EU, and its current plan to adopt a single currency, is well worth the attention of everyone. single European currency will make the EU - which overpowers the US in both production and population - more competitive by: reducing the transactions costs of exchanging currencies, allocating resources more efficiently through the elimination of exchange rate risk and maintaining a more stable price level (Eichengreen 1992: 4). Hence, the EU threatens the US' s dominance as a world economic power. Nonetheless, with less than one year to go before the scheduled start date of the European Monetary Union, questions remain on whether or not the 15 member economies are sufficiently similar to warrant a single currency between them. Indeed, an examination of data on each of the 15 member states suggests that the transition to a single currency will be difficult for some and nearly impossible for others. This finding is particularly disconcerting in light of the potential destabilizing effects that failure of the EMU can have on European as well as other economies. Thus, the nation-states of Europe must proceed with caution.

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