Title: Benefits of the Euro - Economics Help
Headings: Benefits of the Euro
Benefits of the Euro
1. Lower transaction costs
2. Price transparency
3. Eliminating exchange rate uncertainty
4. Improved trade
4. Improvement in inflation performance
5. Low-interest rates
6. Inward investment
7. Benefits to the financial sector
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Content: Eliminating exchange rate uncertainty
Volatile swings in the exchange rate can destroy the profitability of exports (e.g. a rapid appreciation). This exchange rate uncertainty undermines business confidence in investing. Therefore with a single currency business confidence should improve leading to greater trade and economic growth. 4. Improved trade
Supporters of the Euro argue that greater price and cost transparency/no exchange rates encourages intra Eurozone trade. The ECB state exports and imports of goods within the euro area rose from about 27% of GDP in 1999 to around 32% in 2006
4. Improvement in inflation performance
The ECB which sets interest rates for the whole Eurozone area will be committed to keeping inflation low; countries with traditionally high inflation should benefit from this greater inflationary discipline. EU inflation has been low. However this point is debatable as countries outside the Euro have maintained low inflation, and arguably the ECB have concentrated too much on low inflation to the detriment of growth and unemployment.