Europe in 2010 Essay

This essay has a total of 1841 words and 17 pages.

Europe in 2010

Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people,
goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is
underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound
economic policies and to coordinate these policies very closely.

As trade between the EU Member States reaches 60% of their total trade, EMU is the natural complement of the single
market. This market will work more efficiently and deliver its benefits more fully with
the removal of high transaction costs

brought about by currency conversions and the uncertainties linked to exchange rate instability.

EMU and the economic performance of the Euro area will have their largest external effects on neighboring economies in
western Europe and on developing and transition countries with important trade and financial links to Europe, including
countries that link their currencies to the Euro. Among emerging market economies, those
likely to be most affected are the

transition countries of the central and Eastern Europe and the Baltics.

The global environment has been favorable in a number of respects for the transition to EMU and the achievements of its
objectives. The strong demand for euro-area exports from industrial countries at more
advanced stages of the business cycle

and the depreciation of the currencies of euro area countries over the past four years
fostered a strengthening of growth in the

euro area and helped to offset the effects of the Asian crisis.













There are also challenges for EMU in the global economic environment:





The crisis in Asia and other emerging market economies could produce adverse spillover effects and make the monetary
policy more difficult to carry out.
The continuation of the crisis could result in weakening of the external demand, which, in turn, could dampen confidence
and domestic demand.
The financial market volatility could increase the uncertainty in assessing the economic indicators.
The economic crisis in emerging markets could influence the commercial banks in the euro- area to make substantial
provisions for non-performing loans.





THE FUTURE OF EURO



It is, of course, impossible to predict the properties of the behavior of the exchange
value of the Euro. With regard to broad

trend, it seems likely that the Euro will tend to appreciate against the U.S. dollar and
pound sterling over the next few years, but

depreciate against the Japanese yen when Japan's economic recovery begins. The United Kingdom and the United States have
reached relatively advanced stages of their cyclical upswings, with resources more fully
utilized than in the euro area, the Euro's

initial value comparing to the pound and the U.S. dollar can reasonably be considered to be below its medium-term
equilibrium. As the economic recovery in Europe proceeds and the growth in the U.K. and U.S. economies slows, the Euro
will most likely appreciate against those currencies. On the other hand, Japan economy
remains in the critical position. The

resumption of moderate growth will lead to a recovery of the yen. Thus Euro is expected to
depreciate against the yen over the

next few years.

According to some widely made predictions:





Euroland's capital markets, from equities to corporate bonds to municipal finance, will grow exponentially in coming
years as the removal of cross-border currency risk drives pan-European markets.

The Euro will stand alongside the dollar as the second-most-important currency in the

world, reflecting its coming role in global trade and finance as well as its common usage by 290 million Euroland
citizens.

The new central bank has been given the independence to pursue price stability as a

primary objective. This feature will affect the credibility of the ECB positively and thus the investors would see the
Euro as a stable store of value in the next decade.

Once the single currency takes effect, the national central banks of the euro area will

reduce their international reserve holdings. Trade within the euro area will be denominated in a single currency and
will no longer need to be backed by international reserves. Estimates of the EMU countries' resulting surplus of
international reserves range from $50 billion to $230 billion.



THE SCENARIO THAT MOST LIKELY TO HAPPEN IN EUROPE



The scenarios that are presented in the European Commission Forward Studies Unit's report
regarding the economic situation

in Europe towards the year 2010, reflect the possibilities rather fairly. I personally
find the report an accurate study containing

precise predictions. Out of the five futures for Europe, I think the Scenario No.3 seems
the most logical and possible theory to

occur.





The reason I chose this particular scenario is because it focuses on the following issues:





Transformation of the public sector

Efforts to include Eastern Europe

Agreements on unemployment issues
Turning hierarchical pyramids on their heads





The Public Sector



Although in some countries public administrations such as central, regional and local government have started to make
preparations for the introduction of the Euro, in general the evidence is that such
organizations have taken few practical steps to

prepare for the changeover. The grounds mainly are that they have plenty of time because
they operate largely at the 'retail end

of the marketplace' and that they will need to await the circulation of the new notes and
coins. The view of the Federation des

Experts Comptables Europeens (FEE) is that this is a risky and potentially costly strategy
and that early preparation is essential

to reduce both risks and costs. Public administrations therefore ought to be preparing
their own management and operations

systems now for the changeover to the Euro according to advice issued by FEE.

In the near future, member states would often present the Commission with their convergence programs, which would also
assess long term prospects for the public sector. These programs would indicate the
durability of deficit cuts in the countries

whose public economies have been urgently trimmed to meet Euro conditions. Economic growth and structural reforms to
reduce cost pressures on the budget are permanent methods but, for example, special taxes need to be supplemented by
corrective measures to ensure permanent

budget discipline. Indeed, the views of member states about the long term public economy could diverge when their
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