THE EURO - €
Introduction
On the 1st January 1999, the "Euro" will become a commercial currency for the eleven European countries that will participate in economic and monetary union (EMU). Although the UK is not joining EMU at this stage, UK organisations - and the local areas they are based in - will be affected.
This note gives a brief description of EMU and speculates on its impact
for people in and around Greater Manchester.
EMU
The project owes its existence to a suggestion in 1987/88 that the then European Monetary System (EMS) which loosely linked currencies together was distorted by the dominance of the German Deutschmark. The Maastricht Treaty ratified the concept of a single currency in December 1991. Britain and Denmark opted out, but reserved the right to be included later.
The currency turmoil of 1992/93 brought both opposition and support for the concept. On 1st January 1994, the European Monetary Institute opened in Frankfurt. The currency was named the "Euro" and has a value equivalent to the ECU. Since then, intending participants focused on aligning their economies with pre-entry criteria written into the Maastricht Treaty. These are:
Implications
The Euro will be the world's second biggest currency. Some reckon the Euro will be a strong and stable currency that will challenge the dollar's predominance. Consequently, some investors may shift a substantial part of their assets into the Euro.
In practical terms, for those eleven countries, notes and coins in national currencies will circulate for a further three years. However, local banks will offer customers accounts in the Euro and dual pricing will be common.
In theory, a single currency would lower cross-border transaction costs and promote exchange rate stability. However, EMU restricts national governments' use of monetary policy to influence national economic performance. Consequently, the result could be higher unemployment, with increased social divisions. Some economists think the Euro will increase already high unemployment in Europe. Others fear the single currency won't last.
How well the Euro-zone functions depends on how closely it resembles an "optimal currency area". For example the business cycles of different member states should be broadly in line. In the event of asymmetric economic shocks, member states need to be capable of making speedy adjustments. This requires good cross-border mobility of labour and capital.
Greater Manchester, and indeed the NW region, has a relatively large
manufacturing base compared with the whole of the UK. Opting out of EMU
could disadvantage this sector, both in terms of cross-border trade and
foreign investment. Already, it is argued, the high sterling rate that
has impacted adversely on British industry is attributed, in part, to Britain's
reluctance to join the first wave. Other disadvantages include less influence
with the European Commission and with the European Central Bank (ECB).
A recent MORI survey for the FT finds 63% of British firms favour early
entry to the Euro (FT 28/9/98).
Conclusion
The imminent introduction of the Euro and EMU amongst other member states
has major implications for the local organisations and people in the county.
Both local businesses and policymakers should be alert to resulting changes
in the economic environment.
98/17
The euro symbol € is already resident in Win98 Microsoft fonts.
Win95 (and earlier Windows) users can download a patch
from
http://www.microsoft.com/typography/fontpack/default.htm where full
instructions are given.The file size is 2.3MB.
For more information contact Patrick Steele psteele@gmresearch.u-net.com