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... irm's to compete with multinational US and Japanese companies (Barber, 1999). It has been argued the key to challenging the economic strength of the Japan, and US is the realization of strong domestic competition (Salmon, 2000). The removal of barriers between Euroland nations will allow domestic competition to intensify, which will cause the development of firms who possess the ability to compete successfully in international trade (Europa Quest (3), 2001).
The full integration of the Euro into the EMU as a medium of exchange, will also eliminate foreign exchange risk firm engaged in international trade are exposed to. Firms trading within Euroland will no longer have to factor foreign exchange fluctuations into their profit margins, providing even greater incentive for market entry of large firms and giving small to medium sized firms the confidence to initiate a more global strategy (Text, 1996) (Europa Quest (3), 2001). The ESCB control of monetary policy forecasts interest rates within some EMU member states to fall to historically low levels. This creates an environment for growth and expansion within the economy, stimulated by high borrowing and positive business sentiments (Martin, 1997). It is without question, the development of the EMU will have some negative implication for Euroland firms.
Most significantly, European firm will have to bear the considerable financial cost involved in making their operations euro- ready. That is, equipment and software will need to be converted, labour will require training and new procedures for dealing with the Euro need to be implemented (Europa Quest (3), 2001). The financial industry will have to undertake the greatest burden as foreign exchange, bond, equities and managed fund transactions will now all be carried out in Euros (Solomon, 1999). There are also considerable implications for contract law, as a result of the development of the EMU. Whilst, the Principle of Continuity of Contracts prevents any unilateral attempts to use the introduction of the Euro as a premise for canceling or not fulfilling contract arrangements, it is inevitable that contract would become complex with the implementation of the new currency (Europa Quest (2), 2001).
Arguably, the greatest drawback of the EMU for member states, is the loss of national autonomy or rather the ability to exercise choice of monetary and fiscal policy (Antweller, 2001). Of particular consequence, is the diminishing role of national governments, who can no longer rely on fiscal or monetary policy platforms as a means of election, because they are constrained by EMU economic guidelines (Heller, 1997). Countries such as Finland, Italy and Spain are historically prone to asymmetric labour market shocks, which induce high unemployment. Fiscal policy can no longer be utilized as a direct targeting instrument within Euroland, thus member states may begin to exhibit signs of political and economic disarray (Soltwedel, Dohse and Krieger-Boden, 2000).
The Eurozone business community may also be subject to excessive scrutiny of commercial practices, as a result of the EMU evolution. This increased surveillance stems from the EMUs intent to protect consumers throughout this dynamic period within Europe, however this will inevitably raise the transaction costs faced by the business community (Europa Quest (2), 2001). The cost facing Euroland firms are substantial, yet this new founded economic community will surely yield far greater benefits for its participants and ensure the EMU establishes a dominant presence in global markets. The EMU will generate unparalleled benefits for Euroland firms, however the implications for other business communities within Europe are complex. The effect of the EMU on the non-Eurozone nations of Europe can be viewed from 2 perspectives; that of those countries who have chosen not to join the EMU and those who are seeking ascension into the EMU. The United Kingdoms absence from the EMU has been a well-publicized and highly debated topic in Britain (BBC, 1998).
The UK and Denmark exercised an opt-out from the EMU, citing the need to make an independent decision on the ascension issue (Harris, 1999: 91). Each country possesses the economic stability and prosperity to meet the Maastricht Convergence Criteria, however at the deadline for membership in 1998, they felt their economies were not ready for the dynamic and challenging nature of the EMU (Europa Quest (2), 2001). Many feel that is imperative to the success of the organization that the UK join, as they will be required to counter-balance the inevitable attempts to dominate by France and Germany (Princeton Economics, 1998). The reluctance of the UK to adopt the Euro will undoubtedly have ramifications for the British economy, particularly manifesting itself in the form of intense currency pressure. To avoid exchange rate fluctuations, the UKs central monetary authority will need to impose a very strong financial policy. These currency fluctuations and tight monetary policy are likely to expose UK firms to greater exchange rate risk and higher borrowing costs respectively (Europa Quest (2), 2001).
The maintenance of the pound as a national currency will also limit UK firms ability to accrue the efficiency gains through intra-community competition, which their Euroland counterparts will experience, thus they will not be able to compete as successfully in international trade (Princeton economic, 1998). Alternatively, the reluctance of the UK to embrace full economic integration into Europe, may prove to be a highly successful protectionist measure of UK firms, should the Euro not produce the economic gains expected (BBC, 1998). Most other European nations seeking ascension into the EMU, are countries generally perceived to have less developed economies (Europa Quest (1), 2001). Detailed negotiations are currently taking place over the possible membership of Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, Slovenia, Cyprus, Malta and Turkey (IMF, 2000). It is important to note, that prior to the development of the EMU many of these nations pegged their currencies to either the Deustchemark or the Franc, moreover they will now irrevocably fix their exchange rate to the Euro (Europa Quest (3), 2001). This infers any large fluctuations in the Euro, will have dire consequences for these developing economies (Per Jacobson, 1999).
The goal of European Union ascension has become the key driving force behind the massive adjustment and reform efforts in these countries. Should these LDCs be successful with their EU endeavors, the prospects of subsequent currency integration seems high, ensuring that such economies may well achieve future economic stability and prosperity (IMF, 2000). It is essential to remember that entry into the EMU is an awesome task for most of these countries. Moreover it is questionable whether firms will truly benefit from the net gains of ascension, whether the strict convergence criteria is to ambitious and whether adhering to the Maastricht timetable is too greater pressure for the business community to bear (IMF, 2000). EMU members will also need to provide a strong commitment to upholding the inherent values of the monetary union, when negotiating ascension. That is, countries seeking membership within the EMU should makes guarantees of democracy, the rule of law, human rights and protection of minorities as minimum requirements to entry, which would exclude many prospective countries from joining Euroland.
This paper has endeavored to demonstrate the fundamental economic gains likely to be experienced by the Euroland business community with the development of the EMU. Improvements in domestic firms efficiency, increases international competitiveness, reduced foreign exchange risks, access to larger financial markets and the utilization of strategic alliances and joint ventures are likely to occur under the EMU framework and accrue considerable benefits to Euroland firms. The cost of implementing the EMU to member states business communities are substantial, including the financial expenditures involved in making business communities Euro ready, contractual problems, loss of fiscal and monetary autonomy and excessive scrutiny of business practices. While the implementation of the EMU will remain somewhat of a contentious issue, it is abundantly apparent that Euroland firms will derive a net benefits from the application of this monetary union. Moreover, the long and involved process of implementing the EMU policy framework has perhaps ensured a more efficient model of economic integration has finally been developed. Bibliography Antweller, Werner, 2001.
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Research essay sample on Following The Development Of Economic And Monetary Union
