Study of Euro currency with focus on benefits of free markets and economic cooperation

Abstract

Euro has been in circulation for a decade now and is being hailed as one of the important evidence of benefits of economic cooperation amongst nations. In this study we have tried to analyze how Euro was established, the impact of Euro on macroeconomic variables of the member countries and finally contemplating the application of this model in other parts of the world. In the first part of the report we have focused on the political, economic and historic reasons which led to the emergence of a monetary union in Europe. This analysis is supported by the timeline indicating the evolution of various international organizations and various treaties which lead to monetary union in Europe. Then in the second part we focus on the impact of introduction of Euro both internally (on the members of the Euro area like France, Germany, Italy) and externally (US, UK). We compare and contrast the trends in the macroeconomic variables in these economies ever since the Euro was introduced. We also study in detail the implications and the challenges faced by the Euro going ahead. In the third part we contemplate on the application of a monetary union like Euro in other parts of the world. The establishment of Euro essentially started with the end of World War II when the entire Europe was in ruins. Yet presently EU is second largest economy in the world considering the GDP and Purchasing power parity. Some economists appreciate the ECB for its fast responses to the current global financial crisis. Hence we studied the benefits of monetary union such as Euro in developing countries for accelerating their growth, factors and resources required and finally the challenges in to achieve such a monetary union.