Pros And Disadvantages Of The European Monetary Union

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Background: The European Monetary Union is the combination of European Union member states into a cohesive economic system, most notably represented with the adoption of the Euro as the national currency of participating members. The original idea behind the formation of EMU is the creation of the federalist political union of Europe, which could be favourable for other non-economic reasons. However, especially after the European crisis in 2008, literatures are concerned whether the EMU can outweigh the political or economical disadvantages of this federal structure. It is argued that an “artificial” monetary union will reduce the volume of trade among member countries and, above all, single countries will lose the legtimation to adjust exchange…show more content…
Nevertheless, during period of recession, there is the tendency that the tax revenue decreases (at the same time with decrease in GDP) and public expenses (ex unemployment benefits) increase. Those social safety nets increase public expenses but limit further contractions of the national income. If states with weak economic system are obliged to implement the heavy fiscal policies (reduction of expenses and increase in tax revenues) in order to reduce the national public debts, then unemployment and protracted contraction of GDP can occur. The Spanish case shows the groundless analysis proposed by the European Commission as a general solution to an incoming crisis: the cut of public spending. Spain is experiencing a financial recession since 2011 due to the public debt and profound banking crisis caused by the fact that the financial markets are mostly closed within the country. In order to cope with the recession, EMU imposed some austerity measures to comfort financial markets and to live up to Europe’s budget rules. However, the critical economic situation has been worsened. In fact, in Spain most of the toxic debt is held in the private sector. The debt level of the private sector, namely households and…show more content…
The ECB should delegate more power to national central banks to pursue smooth conduct of policies in order to reach first a financial stability within the country and then the requirements of fiscal correction dictated by ECB. Often the economical target set and pursued by the BCE are inappropriate and only deal partially with the real need of national economics. BCE should operate taking into account further targets such as economic growth, reduction of private debt, stability in exchange rate and decrease of unemployment. In order to do so, National Central Banks need to have a greater decisional independence in monetary policies that have to be taken in order to pursue the real need of the

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