European single currency Essay Example | Topics and Well Written Essays - 3250 words

European single currency - Essay Example The idea of a European common currency had been in the drawing board since 1993, but the Euro as EU’s common currency went into circulation in 1999 and was considered as a major step towards European integration. The ratification of the Maastricht treaty in November of 1993 was responsible for the creation of the European Monetary Union or EMU and adopted the Euro as their common currency (European commission, n.d.). When the Euro was introduced into EMU on January 1, 1999, it became the new official currency of the 15 member countries thereby replacing their old national currencies like Deutschmark of Germany and Franc of France. The Euro was introduced first as a virtual currency for payments not requiring hard cash and for purposes of accounting. The old national currencies of member countries were used for cash payments and is considered as sub-units of euro. The European commission revealed that the real euro currency in bank notes and coins appeared in January 2002. The European commission reported that the primary responsibility of the EMU is to ensure the price stability of goods and services in all the member countries by maintaining an annual inflation rate of less than 2%.The European commission added that although Denmark and United Kingdom are members of the European Union, Euro is not their currency as they agreed on the ‘opt-out’ clause of the Maastricht treaty thereby exempting them from participation ... market. The European commission reported that the economic as well as monetary integration of the EU simulates the history of the Union. In 1957, when the EU was founded, they concentrated on establishing a common market. In the course of time, it was felt that closer cooperation related to economic and monetary matters were needed for the common market to progress and flourish further. The European commission revealed that when the euro was adapted as the single currency of the EU, the monetary policy is being managed by the European Central Bank (ECB) which was established for that sole purpose, and the corresponding central banks of the member countries. Together, they formed the Eurosystem Fiscal Policy on tax and spending and remain as responsibility of individual member countries. They adhere to follow the agreed procedures on public finances accounting known as Stability and Growth Pack. The member countries also retain their responsibility for creating their own structural policies related to labour, capital markets as well as pensions. They however agree to coordinate them with ECB to ensure higher chances of achieving goals related to stability, employment and growth. Having adopted a single European currency has many benefits and these were the motivations for the creation of the Euro. An Economics teacher form Oxford University named Tejvan R.Pettinger (2008) enumerated the benefits that can be derived from having only one European currency system. They are as follows: Reduced transaction Costs 1. There will be no more cost involved in currency exchanges; this will benefit tourists and firms trading in the Euro area