… irms to compete with multinational US and
Japanese companies (Barber, 1999). It has been
argued the key to challenging the economic
strength of the Japan, and US is the realization
of strong domestic competition (Salmon, 2000). The
removal of barriers between Euroland nations will
allow domestic competition to intensify, which
will cause the development of firms who possess
the ability to compete successfully in
international trade (Europa Quest (3), 2001). The
full integration of the Euro into the EMU as a
medium of exchange, will also eliminate foreign
exchange risk firm engaged in international trade
are exposed to. Firms trading within Euroland will
no longer have to factor foreign exchange
fluctuations into their profit margins, providing
even greater incentive for market entry of large
firms and giving small to medium sized firms the
confidence to initiate a more global strategy
(Tett, 1996) (Europa Quest (3), 2001).
control of monetary policy forecasts interest
rates within some EMU member states to fall to
historically low levels. This creates an
environment for growth and expansion within the
economy, stimulated by high borrowing and positive
business sentiments (Martin, 1997). It is without
question, the development of the EMU will have
some negative implication for Euroland firms. Most
significantly, European firm will have to bear the
considerable financial cost involved in making
their operations euro- ready. That is, equipment
and software will need to be converted, labour
will require training and new procedures for
dealing with the Euro need to be implemented
(Europa Quest (3), 2001). The financial industry
will have to undertake the greatest burden as
foreign exchange, bond, equities and managed fund
transactions will now all be carried out in Euros
There are also considerable
implications for contract law, as a result of the
development of the EMU. Whilst, the Principle of
Continuity of Contracts prevents any unilateral
attempts to use the introduction of the Euro as a
premise for canceling or not fulfilling contract
arrangements, it is inevitable that contract would
become complex with the implementation of the new
currency (Europa Quest (2), 2001). Arguably, the
greatest drawback of the EMU for member states, is
the loss of national autonomy or rather the
ability to exercise choice of monetary and fiscal
policy (Antweller, 2001). Of particular
consequence, is the diminishing role of national
governments, who can no longer rely on fiscal or
monetary policy platforms as a means of election,
because they are constrained by EMU economic
guidelines (Heller, 1997). Countries such as
Finland, Italy and Spain are historically prone to
asymmetric labour market shocks, which induce high
unemployment. Fiscal policy can no longer be
utilized as a direct targeting instrument within
Euroland, thus member states may begin to exhibit
signs of political and economic disarray
(Soltwedel, Dohse and Krieger-Boden, 2000).
Eurozone business community may also be subject to
excessive scrutiny of commercial practices, as a
result of the EMU evolution. This increased
surveillance stems from the EMUs intent to protect
consumers throughout this dynamic period within
Europe, however this will inevitably raise the
transaction costs faced by the business community
(Europa Quest (2), 2001). The cost facing Euroland
firms are substantial, yet this new founded
economic community will surely yield far greater
benefits for its participants and ensure the EMU
establishes a dominant presence in global markets.
The EMU will generate unparalleled benefits for
Euroland firms, however the implications for other
business communities within Europe are complex.
The effect of the EMU on the non-Eurozone nations
of Europe can be viewed from 2 perspectives; that
of those countries who have chosen not to join the
EMU and those who are seeking ascension into the
EMU. The United Kingdoms absence from the EMU has
been a well-publicized and highly debated topic in
Britain (BBC, 1998). The UK and Denmark exercised
an opt-out from the EMU, citing the need to make
an independent decision on the ascension issue
(Harris, 1999: 91). Each country possesses the
economic stability and prosperity to meet the
Maastricht Convergence Criteria, however at the
deadline for membership in 1998, they felt their
economies were not ready for the dynamic and
challenging nature of the EMU (Europa Quest (2),
Many feel that is imperative to the success
of the organization that the UK join, as they will
be required to counter-balance the inevitable
attempts to dominate by France and Germany
(Princeton Economics, 1998). The reluctance of the
UK to adopt the Euro will undoubtedly have
ramifications for the British economy,
particularly manifesting itself in the form of
intense currency pressure. To avoid exchange rate
fluctuations, the UKs central monetary authority
will need to impose a very strong financial
policy. These currency fluctuations and tight
monetary policy are likely to expose UK firms to
greater exchange rate risk and higher borrowing
costs respectively (Europa Quest (2), 2001). The
maintenance of the pound as a national currency
will also limit UK firms ability to accrue the
efficiency gains through intra-community
competition, which their Euroland counterparts
will experience, thus they will not be able to
compete as successfully in international trade
(Princeton economic, 1998). Alternatively, the
reluctance of the UK to embrace full economic
integration into Europe, may prove to be a highly
successful protectionist measure of UK firms,
should the Euro not produce the economic gains
expected (BBC, 1998).
Most other European nations
seeking ascension into the EMU, are countries
generally perceived to have less developed
economies (Europa Quest (1), 2001). Detailed
negotiations are currently taking place over the
possible membership of Bulgaria, the Czech
Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Romania, the Slovak Republic, Slovenia,
Cyprus, Malta and Turkey (IMF, 2000). It is
important to note, that prior to the development
of the EMU many of these nations pegged their
currencies to either the Deustchemark or the
Franc, moreover they will now irrevocably fix
their exchange rate to the Euro (Europa Quest (3),
2001). This infers any large fluctuations in the
Euro, will have dire consequences for these
developing economies (Per Jacobson, 1999). The
goal of European Union ascension has become the
key driving force behind the massive adjustment
and reform efforts in these countries. Should
these LDCs be successful with their EU endeavors,
the prospects of subsequent currency integration
seems high, ensuring that such economies may well
achieve future economic stability and prosperity
It is essential to remember that
entry into the EMU is an awesome task for most of
these countries. Moreover it is questionable
whether firms will truly benefit from the net
gains of ascension, whether the strict convergence
criteria is to ambitious and whether adhering to
the Maastricht timetable is too greater pressure
for the business community to bear (IMF, 2000).
EMU members will also need to provide a strong
commitment to upholding the inherent values of the
monetary union, when negotiating ascension. That
is, countries seeking membership within the EMU
should makes guarantees of democracy, the rule of
law, human rights and protection of minorities as
minimum requirements to entry, which would exclude
many prospective countries from joining Euroland.
This paper has endeavored to demonstrate the
fundamental economic gains likely to be
experienced by the Euroland business community
with the development of the EMU. Improvements in
domestic firms efficiency, increases international
competitiveness, reduced foreign exchange risks,
access to larger financial markets and the
utilization of strategic alliances and joint
ventures are likely to occur under the EMU
framework and accrue considerable benefits to
Euroland firms. The cost of implementing the EMU
to member states business communities are
substantial, including the financial expenditures
involved in making business communities Euro
ready, contractual problems, loss of fiscal and
monetary autonomy and excessive scrutiny of
business practices. While the implementation of
the EMU will remain somewhat of a contentious
issue, it is abundantly apparent that Euroland
firms will derive a net benefits from the
application of this monetary union.
long and involved process of implementing the EMU
policy framework has perhaps ensured a more
efficient model of economic integration has
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Research essay sample on Following The Development Of The Economic And Monetary Union