The Euro Should be Discontinued

I am going to go through this debate in a cause and effect manner. In other words, I will first explain the problems with the Euro, then I will explain their effect on Europe. I. Problems With the EuroEach country has different economic situations that need individualized solutions. However, the Euro takes away the power for countries to dictate their own economic policies. This is a problem for, for example, Spain and Germany, who are facing drastically different economic prospects. I. i. Individualization A single monetary union that serves a single interest to all of Europe is impossible. The Eurozone is a hodge-podge of different countries; it is a “patchwork of sovereign nations with distinct languages, cultures and histories that have more often been at war with each other than in search of common ground”. Each country has its own economic problems that require individualized solutions. [1]This creates major problems when all countries must find a one-size-fits-all economic plan. I will now go through some of the economic policies that the Euro centralizes. I. ii. Interest Rates The ability for Governments to set interest rates on their own is a vital tool to combat economic problems. Interest rates are monetary policies set by the Government to combat economic problems. Raising the interest rate slows inflation, while lowering the interest rate helps end a recession, and every country has a different interest rate to satisfy its economic needs. “By adopting a single currency, Euroland governments will lose control over a vital instrument for managing a national economy – the power to mint money and influence its value by adjusting interest rates. "[1]I. iii. Exchange Rates Exchange rates are also very important to the well-being of an economy. Countries set rates depending on their economic conditions. If a country is experiencing a recession, it might start exporting more and importing less so as to create a trade surplus and raise GDP. As with interest rates, the Euro takes this vital power away from each country. "Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germany’s joblessness. "[2]I. iv. Debt Yet another bad side effect is the Government’s inability to control debt. Governments used to be able to control borrowing through economic indicators. However, as with everything else, the Euro takes that power away from countries. "Before the monetary union was put in place, large fiscal deficits generally led to higher interest rates or declining exchange rates. These market signals acted as an automatic warning for countries to reduce their borrowing. The monetary union eliminated those market signals and precluded the higher cost of funds that would otherwise have limited household borrowing. The result was that countries borrowed too much and banks loaned too much on overpriced housing. This caused “rapidly rising ratios of public and private debt to GDP. "[3]II. The EffectsThis section will highlight how all of these failures of the Euro have affected Europe. II. i. InflationInflation in Europe had been going down since 1992, but in 1999, the year that exchange rates were fixed for legacy countries and when banks used the Euro as an electronic currency, inflation started to go back up. It went from a bottom of .75% at the beginning of 1999 to an average level of a little over 2% from 2000 until 2008. Since then, it has spiked and then decreased rapidly, down to actually -.5%, but inflation has been now steadily increasing since then, and the current inflation rate is 2.5%. [4]II. ii. Unemployment Unemployment skyrocketed by 5.6% in America and it soared 3% in the Euro-Area during the recession. However, America’s unemployment since then has dropped 2% while the Euro-Area’s has actually increased 1.5% over the same period. In fact, the EA-17 (countries officially recognized as having adopting the Euro) to EU-27 (countries who are members of the European Union) ratio has almost always been less than one since the Euro was begun. However, it is currently a little more than 1.07 – meaning that the EA-17’s unemployment rate is .8% above the EU-27’s. [5][6]II. iii. Debt The worst side effect of the Euro is the debt crisis that is crippling many countries throughout Europe. The average debt to GDP ratio for the EA-17 was around 74% in 2008, but is now around 83%. Even more shocking, "For all the countries of the Organization for Economic Co-Operation and Development, general government debt as a share of GDP having taken 15 years to go from 63 percent to 73 percent when the recession began in 2007, has now soared to about 105 percent. "[7]ConclusionI will finish my argument with a hypothesis argument.1) The Euro takes away the power of countries to dictate their own economic policy.2) This causes problems as the wrong economic policy is put in place for most countries.3) The correlation of this is clearly visible. 4) Therefore, the Euro should be discontinued. Sources:[1]: . http://library.cqpress.com.ezproxy.vccs.edu...[2]: . http://www.nytimes.com...[3]: . http://www.nber.org...[4]: . http://www.tradingeconomics.com...[5]: . http://data.bls.gov...[6]: . http://epp.eurostat.ec.europa.eu...[7]: . http://finance.yahoo.com...