EURO SINGLE CURRENCY:
OPPORTUNITIES AND CHALLENGES FOR INTERNATIONAL MARKETING
In 1992, the Maastricht Treaty provided the establishment of a European political and monetary union. This became a reality with the official introduction of Euro in 1999 and circulation of euro in form of coins and notes on January 1, 2002. That currency would be managed by the European Central Bank based in Frankfurt in Germany. Europe established that single currency in the European Union for a number of reasons. The current essay intends to discuss those reasons and the impact of that stage of economic integration had had on global marketing.
Single currency: an aspect of European economic integration
A single currency for European Union (EU) was born under economic and monetary union which is part of the process of economic integration. Economic and monetary union is characterized by a single market with a single currency and monetary policy. However, in European Union, the degree of economic integration currently varies. All member States of EU compose Economic and Monetary Union (EMU) and are part of a single market whereby they enjoy a customs union (emphasizing removal of trade barriers like technical standards and taxes) with common policies on the freedom of movement of capital, goods, labor and services. Under this economic climate, adopting the euro is an obligation put in place in the Treaty of Rome signed in 1957 establishing the European Community. Many member States have married the single currency- the euro and form a single monetary policy monitored by European Central Bank. But, the European countries which are not the members of the euro area retain their own currencies and carry out their own monetary policies. Thus, the degree of economic integration within EMU is a hybrid of a common market and economic and monetary union. That means that to attain the ultimate economic integration, all member States need to join the euro are and harmonize their fiscal policies including taxation and economic policies. The following lines highlight the journey that brought Europe to economic and monetary policy with a single currency.
According to European Commission in the book “One Currency For One Europe- The road for to the euro” 1, the passage towards a single currency can be divided into four historical stages as shown in the figure below: from the Treaty of Rome to the Werner Report (1957-1970); from the Werner Report to the European Monetary System (1970-1979); from the start of European Monetary System to Maastricht Treaty (1979-1991) and from Maastricht Treaty to the euro and the euro area (1991-1999).
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Source: http://ec.europa.eu/economy_finance/publications/publication6730_en.pdf (accessed on August 19, 2011 1:56 pm GMT)
From the Treaty of Rome to the Werner Report (1957-1970): The after the Second World War order for the market economies of Europe, North America and Japan lied on the Bretton Woods system which laid down the international framework for currency stability with gold and the United States dollar as the predominant standard as proposed by the White’s plan. Thus, the participants of the Treaty of Rome assumed that stable currencies would remain as such and that they could reconstruct Europe through achievement of a custom union and a common market that would promote free movement of goods, services, people and capital. But, in the 1950s the Bretton Woods system began to display signs of strain and by 1968-69, currency instability occurred and hit the European Community by forcing a revaluation of the Deutschmark and the devaluation of the French franc. In order to act against this ravaging wind, the European Community with the customs union largely attained wanted to set new goals for political development during the next decade. It is in that vein that the 1969 Barre Report proposed greater economic coordination and The Hague in 1969, formalized Economic Monetary Union as a goal to be achieved. Thus, Europe leaders put in place a high-level group under the supervision of the Luxembourg Prime Minister, Pierre Werner to report on how EMU could be attained by 1980. In October 1970, Werner group submitted its final report in which a three-phase process to attain EMU within 10 year period was recommended. The report also pointed out that the final objective should be irrevocably convertible currencies, free movement of capital and the permanent locking of exchange rates or possibly a single currency. To achieve that objective, the report recommended closer economic policy coordination with interest rates and management of reserves decided upon at Community level as well as agreed frameworks for national budgetary policies. However, some member States were divided over some of the main recommendations of the report.