Impact of European integration in its member — страница 9

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Undesirable because national governments would lose the ability to control policy. 4. Deflationary tendencies. Perhaps the most important economic argument relates to the deflationary tendencies within the system. In the 1980s and 90's France succeeded in reducing her inflation rates to German levels, but at the cost of higher unemployment, for the UK, it can be argued, that membership of the ERM between 1990 and 1992 prolonged unnecessarily the recessional period. This is because the adjustment mechanism acts rather like that of the gold standard. Higher inflation in one ERM country means that it is likely to generate current account deficits and put downward pressure on its currency. To reduce the deficit and reduce inflation, the country has to deflate its economy. In the UK,

it could be argued that the battle to bring down inflation had been won by the time the UK joined the ERM in 1990. However, the UK joined at too high an exchange rate. It was too high because the UK was still running a large current account deficit at an exchange rate of around 3 Dm to the pound. The UK government then spent the next two years defending the value of the pound in the ERM with interest rates which were too high to allow the economy to recover. Many forecasts predicted that, had the UK not left the ERM in Sept 1992, inflation in the UK in 1993 would have been negative (ie prices would have fallen).The economic cost of this would have been continued unemployment at 3million and a stagnant economy. When the UK did leave the ERM and it rapidly cut interest rates from

10% to five and a half %, there was strong economic growth and the current account position improved, but there was an inflation cost. EU is not only economic and political union but traditional and cultural aspects includes as well. But today situation is changing and EU entity is going to influence it and gradually Political Union might be achieved by EU, then all values beliefs, cultures, traditions will be the same because might be presented as a one nation. According to my outlook these values and beliefs of each nation is important because, it what does motivates them as a nation (country), however the union drains them. From economy point of view is good to stabilize the economy but they ignore subjective matters as I have mention in previous statements but objectives

matters have been achieved but have not finalized the union because Political Union not achieved, which is the hardest stage and further one. However, if take into consideration other points, which are advantages then we can see also some advantages that EU benefits in fact. As follows: Advantages Transaction costs will be eliminated. For instance, UK firms currently spend about 1.5 billion sterling a year buying and selling foreign currencies to do business in the EU. With the EMU this is eliminated, so increasing profitability of EU firms. Advice to young people: You can go on holiday and not have to worry about getting your money changed, therefore avoiding high conversion charges. Price transparency EU firms and households often find it difficult to accurately compare the

prices of goods, services and resources across the EU because of the distorting effects of exchange rate differences. Uncertainty caused by Exchange rate fluctuations eliminated. Many firms become wary when investing in other countries because of the uncertainty caused by the fluctuating currencies in the EU. Investment would rise in the EMU area as the currency is universal within the area, therefore the anxiety that was previously apparent is there no more. 4. Single currency in single market makes sense. Trade and everything else should operate more effectively and efficiently with the Euro. Single currency in a single market seems to be the way forward. 5. Rival to the "Big Two". If we look out in the world today we can see strong currencies such as the Japanese Yen

and The American $. America and Japan both have strong economies and have millions of inhabitants. A newly found monetary union and a new currency in Europe could be a rival to the "BIG TWO". EMU can be self-supporting and so they could survive without trading with anyone outside the EMU area. The situation that EMU is in is good as it seems that it can survive on its own, with or without the help of Japan and U.S.A. 6. Prevent war. The EMU is, and will be a political project. It's founding is a step towards European integration, to prevent war in the union. It's a well known fact that countries who trade effectively together don't wage war on each other and if EMU means more happy trade, then this means, peace throughout Europe and beyond (we hope). Increased Trade and