FREE ESSAY ON THE EUROPEAN UNION

THE EUROPEAN UNION

The managed exchange rate system deals with trade rate between countries. Managed rates
assume that one country sets the monetary policy, takes the exchange rate that is given,
and assumes the other country will go along with that rate. The other country then tries
to reduce inflation by setting their own exchange rate. The managed exchange rate system
slows down exchange-rate movement through the foreign trade market intervention. 
The whole purpose behind the European Union is to maintain peace between the European
counties, and to integrate them. The founding gentlemen of the EMS wanted to restore the
integration of the European Communities. In 1949, the Council of Europe was founder to
promote political and social unity in Europe. Later in 1952, the European Coal and Steel
Community was started to "allay fears of a 'military-industrial complex' fuelling
renascent German nationalism" (Artis & Lee 5). Economic integration and unity was brought
to a head in March of 1957 when the European Economic Community and the European Atomic
Energy Community were formed. These two treaties were used to help stabilize and form the
ECU. All three of these organizations/treaties were essential to forming what is today
called the European Union. 
The European Union/European Monetary System failed for three basic reasons in the early
1990's. First of all, it failed because it was inefficient due to the low-inflation
system and the recession in that time period. The recession elaborated on the conflicts
between the member countries of the European Union. Second, it is not sufficiently
competitive at the current rate of exchange. Third, the real interest rate of the world
would need to decline drastically in order for the EU to work. Also in the early 1990's
there were "smaller expectations of devaluations" (DeGrauwe 131). 
The current European Union has been a result of recent treaties. The first treaty that
was signed in February 1992 helped the unification of Europe be that much closer. It set
the groundwork for one currency throughout Europe called the euro. In order to update the
current treaties the Amsterdam Treaty was signed as a result of the Intergovernmental
Conference. This treaty resulted in a plan to listen to the citizens, get closer to a
more secure Europe, to make Europe more vocal throughout the world, and to make the
European Union more efficient. 
As of January of 1997 there were 15 countries belonging to the regional and economic
European Union. The countries currently involved are Austria, Belgium, Denmark, Finland,
France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and
the United Kingdom. In the future the European Union hopes to grow and add more countries
to this list. 
The banking system that the European Union uses is a Central Banking System. With the
evolvement of the Euro the economics of Europe will be easier to maintain. As of January
1, 1999 the national central banks and the European Central Bank were formed to help
institute the monetary policy using the euro.
The macroeconomics theory accompanied with the use of economic analysis can illustrate
the ideas behind the EMS. The members of the EU have put a strong emphasis into the
monetary and macroeconomic policies. In order to "reduce inflation the tried to have more
stable competitive conditions within in the EMS which resulted in strict exchange rates"
(Levich & Sommariva 5).
The European Union has a long way to go before it achieves 100% success. It is updated
basically on a year-to-year basis. In order to continue to improve the Union they have
established an Agenda 2000. This agenda presents the major problems that they will
encounter as the year 2000 is approached. First, they want to strengthen and reform the
Community policies to deal with a growing European Union. Second, they need to look at
the other countries that have applied to be a part of the Union. Last, a budget needs to
be established that includes all of their future plans. 
There are many advantages to having a united Europe to the people of Europe. One benefit
is trade. There is now a free movement of goods, services, people and, money within the
countries belonging to the European Union. Having a united Europe, which will result in
the euro, will benefit information technology, administrative changes, and the
information and training of employees. The benefits of the EU on citizens, businesses,
and tourists will be determined by how much attention is paid by each particular country
to maintaining and promoting good relations with one another. (Sumner & Zis 249) 
American businesses are affect by the united Europe. For example, in 1980-85 there was an
unpredicted increase in the value of the dollar. As a result of the dollar appreciation
many American industrial firms that competed in the international market were more
profitable than in the past. The European Union also affects the business in the United
States because the "cash forward market liquidity tends to 'dry up'" in the middle of the
afternoon because that is when the European currency traders are going home for the day
(Levich &Sommariva 95). Investors in the ECU are growing on a daily basis. Investors tend
look at the Union as a risk-returning investment according to dollar assets and the
foreign alternatives that are available.
Bibliography
Bibliography
DeGrauwe, Paul. The Economics of Monetary Integration. Oxford: Oxford University Press,
1994.
Giavazzi, Francesco, Stefano Micossi, and Marcus Miller. The European Monetary System.
Cambridge: Cambridge University Press, 1988. 
Levich, Richard M., and Andrea Sommariva. The ECU Market: Current Developments and Future
Prospects of the European Currency Unit. Lexington: Lexington Books, 1987.
Sumner, M.T., and G. Zis. European Monetary Union: Progress and Prospects. New York: St.
Martin's Press, 1982.