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Why the European Monetary Union Is so Controversial

In: Business and Management

Submitted By alevives
Words 1912
Pages 8
According Balassa (1962) there are five stages of economic integration: the free trade area, the customs union, the common market, the economic junction and the complete economic integration. The European Union is on the penultimate stage, which is the economic union. The objective of this essay is to know more about the European monetary union and other touch points that are to be the EMU, the process, countries belonging to the European Union but not part of the EMU and its reasons.

Economic union is a common market that removes restrictions on trade between countries. The currency is the same and a central authority controls fiscal policies. It has a single currency and monetary policy. The objective of this stage is that members actually are formed as one nation and its features are a common fiscal common currency, harmonized tax rates, the pooling of foreign exchange reserves, and monetary policy. (Cerdeira, 2009)

The EMU is a major step in the integration of the economy of the European Union. It involves the coordination of economic and fiscal policy of the same coin policies, some countries took the next step to the next stage and adopted the euro as its currency, and these countries are part of the euro area. (EC, 2014)

" One Market, One Currency " is what the European Commission defined as a geographical area where the economy is a single currency and where risks can be managed and has flexibility among country. This would make cuts of a country being adversely affected by an external shock, but the EU was having more social and employment laws that reduce market flexibility. (Heathcoat- Amory, 2012)

According Mundelll (1961), there are three conditions that countries need for a successful common currency to be beneficial: first external shock can not have that can you hit individual countries that are part of the EMU, the second condition is...

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