Perepelitsa E.A, Ivanenko
I.A., Ph D, docent
Donetsk National University of Economics and Trade
after M. Tugan-Baranovsky
Features of the Eurozone expansion
In view
of the fact that Ukraine plans to join the European Union, it will face to
demands that the EU imposes on countries participating, with the problems and
advantages that exist in Eurorozone. So it is important to understand that
before deciding to enter the EU and the Eurozone, in particular, consequences
of such an important step should be scrutinized. The purpose of this work is to
examine the conditions of admission to the Eurozone, the advantages and
disadvantages for the participating countries as well as identifying the
problems of the Eurozone enlargement.
The
Eurozone is a monetary union, including countries of Europe, where the official
currency is the euro. Members have the right to issue coins and banknotes
denominated in euros. The European Central Bank (ECB) is responsible for
monetary policy.
In 1999
currency euro was introduced in cashless treatment as a parallel currency to
the countries of the Economic and Monetary Union of EU. That year 11 out of 15
EU countries met the Maastricht criteria and formed the Eurozone, with the
official launch of the euro in non-cash circulation on January 1, 1999. The
actual notes and coins were introduced on
January 1, 2002. Later Slovenia, Cyprus, Malta and Slovakia have joined
the Eurozone. Currently it is composed of 16 member countries with more than
320 million inhabitants.
The criteria for joining the
Eurozone fixed by Article 121 (1) of the Maastricht Treaty (Maastricht
criteria) are as follows:
• inflation should be not more
than 1,5% higher than lowest rates of 3 members of the EU;
• lack of government sector
budget should be less than 3% of GDP;
• borrowings of government
sector should be less than 60% of GDP;
• national currency should has
stable exchange rate;
• long-term interest rate
should not be higher than 2% of the average level three member countries have
achieved the best results in the field of price stability;
•
Central Bank of the country should has an autonomy and be integrated into the
euro system;
•
results of the markets integration of, state and development of the balance of
payments, as well as special charges for labor and the development of other
price indexes, etc.
European
Exchange Rate Mechanism (ERM) ) -1 within
the framework of Economic and Monetary Union has been established to ensure
financial stability through the establishment of fixed exchange rates. European
currency unit involves fluctuations within 2,25% from 1993 - 15%. The
consequences were the destruction of the binding of the Irish pound to the
British pound .Great Britain included on the ERM in 1990, came out in 1992
after spending 6 billion pounds. It was named to the "Eternal Recession
Mechanism"
In
ERM-II in 1999 were Denmark and Greece, and after 2001 - only Denmark, and May
1, 2004 Agreement of National central Banks on new EU member states was signed.
The
most obvious advantage of the single currency for the citizens of the euro area
is the ability to travel freely. But the euro has other advantages:
-
eliminated exchange rate fluctuations, which contributes to a stable trade
within the euro area;
- no
currency risk, which allows a more reasonable plan investments;
-
reduced operating costs (related to foreign exchange and hedging transactions,
international payments and management of currency pool accounts);
-
become more transparent prices, as consumers from different countries easier to
compare them, thereby increasing competition;
- huge
market of the single currency becomes more attractive to foreign investors.
Due to
the large size of the economy and the stability of the ECB can control
inflation at lower interest rates.
Entry
into the Eurozone has also a negative side. The example of countries such as
Ireland, Spain and the Baltic States shows a rapid entry into the euro area (or
fixing the exchange rate tied to the euro - as it happens in the Baltic
countries) does not eliminate the risk. Membership in the euro area (or peg to
the euro) means for the states that they can no longer conduct their own monetary
policy. Central European countries within the EU are still in a state of
economic catch-up, which is accompanied not only higher growth, but high
inflation. The combination of low bank interest rates and slightly higher
inflation led to a period of de facto negative interest rates and credit boom
in the Baltic States. The roots of this crisis are deep in excessive
accumulation of debt. Ireland, which also showed an impressive growth over the
past ten years, is now faced with the consequences of previous excessive credit
booms and problems in the real estate market.
Eurozone
growth is hampered by two factors - shortcomings in carrying out structural
reforms to unleash the potential of economic growth, and lack of confidence on
the part of entrepreneurs, as well as from consumers. In addition, the rate of
expansion in the euro area is significantly affected by a global financial
crisis. The example of Greece shows that a country whose share is only 2,8% of
GDP Eurozone, will significantly affect the fate of the euro. But it turned out
that this state is guilty of a record in recent years, the fall of the euro
against the U.S. dollar. All this means that now the EU is very careful to
treat enlargement of the Eurozone.
So, the
Eurozone brings state as conclusive benefits and involves certain risks. The
EU, in turn, in the process of enlargement of the Eurozone is also facing
several challenges, without which the further expansion of the euro area may
become impossible.
References:
1.
Международная интеграция: Учебное пособие/ под ред. О.Б.Чернеги. – 2-е изд.,
обновл. и доп. – Донецк: «Каштан», 2009. – 350 с.