Euro pros and Cons
...em more expensive, when they are not. This is due to the fact that “Greeks were used to dealing in hundreds, thousands and even millions of drachma. One euro therefore seems a pitiful amount of money when in fact, given the low salaries in Greece; it is not something to throw away as small change”. On the other hand businesses say that confusion has led to misperception that prices have increased and the government insists that there is no increase in inflation .However even government admits that there have been round ups to the prices of many goods and this is because of the euro. The article also refers to the impact of this situation to tourism Greece’s biggest industry. “It is estimated that ten million people visit Greece every year providing the most important source of foreign revenue”. A Belgian tourist said that especially restaurants and hotels now are twice as expensive that’s why more and more tourists prefer to go to Turkey that has also nice climate and is cheaper. Finally the article is concluding by giving the bright side of euro. It says that despite the above problems “Greek government is convinced that euro has been responsible for transforming the Greek economy from one of Europe’s weakest to one of the most vibrant”. Vassilis Rapanos, chairman of the Council of Economic Advisers says that “in the past the Greek economy suffered from high inflation, high deficits in the public sector and a large number of devaluations of its currency (the drachma) so Greeks didn't really trust their currency." He says the adoption of the euro has created an entirely new environment for consumers, investors and businessmen. The government expects the Greek economy to grow faster than any other within the European Union the year 2003. III. Pros and Cons of Euro A. Pros: 1. Worldwide effects • EMU countries as Greece will become more attractive foreign direct investment (FDI) destinations, as companies outside the EMU region will seek to avoid as much exchange rate risk as possible. • Euro rival to the US dollar --> increases the world's long-term economic viability 2. Europe effects • Exchange rate stability within Europe over time • Interest rates in European countries should fall • Governments will begin to work together and co-ordinate their economic policies, meaning a more powerful voice for the EU on the international economic stage. More especially Greece will have the benefit of getting help from the other members. • Removing exchange rate risks will result in an increase in trade among Greece and the eleven EMU members, resulting in additional growth and employment. • To join the euro, all countries must meet the criteria of the EMU, that is, they must have a sound economy. If the economy in all countries does well, trade will increase and therefore also employment. 3. Companies and investors • Easier for companies to run a multinational operation with reduced administrative costs, no exchange rate uncertainty and more opportunities for expansion. • Lower costs of capital • Easier to compare the prices and performances of all securities across the euro zone. • Investors will have wider choice and greater certainty. • Exchange risk reduced 4. Consumers • Price differences across the euro zone will become transparent • Travelers: one currency will be valid in 11 countries. • Cheaper for many euro zone companies to move into new markets with more choice and lower prices. It will be easy to compare prices in different countries. You don't have to change money anymore or make complicated calculations. • There are no exchange rates. If for instance a British computer company uses Spanish parts and pays for them in pesetas, and the peseta becomes more expensive, it has to raise the price of the computer. And then you can’t compete, so you’ll incur losses. The Euro does away with exchange rates and therefore also with the risk of sudden losses. • Without exchange rates, you don’t lose money on holiday when you change it B. Cons: 1. Europe effects: • No possibility of adjusting interest rates of their exchange rate independently • Limited scope for independent adjustment because of the Stability and Growth Pact constrains the size of overall public sector deficits. • One-fits-all interest rate could result in economic weakness and unemployment in some areas or unwanted inflation in others. • There is no political union. Some people think that it is necessary to have a political union, because they are afraid that some countries will not play by the rules, or that they manage to join without meeting the criteria of the EMU. • Introducing the euro is very expensive. All the old money must be collected, destroyed and replaced by euros. This is hugely expensive without any benefits. People who support the euro say that it is a one-off expense. • Unemployment will increase. Trade will also increase. As a result, companies will no longer be able to compete because of increased labor cost, so that they have to make people redunda...