On European Economic Union And The Euro's Status In The International Monetary System

Euro was born on January 1, 1999, which was the greatest revolution andexperiment on the history of international economics and money. The longhistory and the birth of the Euro brought many important questions. It is worthour thinking about. Why Europe want to build such a single money area? Whatare the history and actual basis and cause? Can Euro be the powerful challengefor US dollar? I try to find the answers on the basis of former researcher'sresult and explain why the exchange rate of Euro-US dollar was so not steadyafter the born of the Euro. Moreover, I try to explain the instability of Euro.The main content of this paper include five sections.Section one: the development of the European Economics and MoneyUnion. The factual revolution of European money system began in December,1969, when European summit conference was held in Hague. The conferenceappointed, Werner, the Prime Minister of Luxemburg head of a panel ofexperts in charge of making Werner Plan. But the fact proved that its viewpoint about the European monetary policy was too advanced. The initial firsteight member states of EMS's ERM began to running a formal framework of"mutual fix exchange rate"on March 13, 1979. And at that time EMS was born.EEC committee (European Economic Community) concluded an object aboutcarrying out Economic and monetary union step by step. The chairman of thecommittee leaded the group draw a report about EEC Economic and monetary,that was Delors'report. On the basis of this report, the heads of EuropeanEconomic Community negotiated about how to establish European politics,economic and monetary Union in Maastricht, Holland in December, 1991.Theforeign ministers of EEC signed and passed Maastricht Treaty.Section two: the factual and theory basis of Euro. The born of Euro was along historical procedure. It is hard to image without the great development ofEuropean economics integration. European economics integration'sdevelopment was the soil of birth of Euro. And the birth of Euro is certainlythe necessary stage in the procedure of European Economic integration fromlower to higher. And the theory of Optimum Currency Areas (OCA), whichMundell firstly brought forward, is the theory guide of Europe monetaryunion.In this section, we mainly talked about OCA. Firstly, I introduce someEconomists'statement s about OCA briefly. The concept of OCA was firstlybrought forward by Mundell. What is the standard of OCA? Mundell broughtforward liquidity of product element (labor and capital).McKinnon broughtforward the standard of opening of economic. He claimed taking the degree ofthe opening of economic as the standard of OCA. The degree of the opening ofeconomic is decided by the trade commodity's proportion in the total societyproduct. Kenen then took the diversification of product as standard, butIngram thought it was financial integration. Secondly, from the point ofdemonstration, the research of Krugman approved that the Euro Area is notOCA now. But with the development of EU, EMU will have the character ofOCA at last.Section three: analyze the factors which influence the instability of theEuro. The successful birth did not mean the successful running. The internalbasic conflict also got more and more attention. The factors are: firstly, aboutmonetary policy the conflict of the object of the Euro Area monetary policyand economic growth and the single monetary policy and the economicdifference. Secondly, SGP and the deficit of member states.SGP was taken asthe base of EMU. But many states especially France and Germany disobeyedSGP too, which proved that SGP was not suitable again. Thirdly, theindependence of ECB (European Central Bank). Though ECB has highindependence ,the independent running of ECB will be influenced greatly bythe interest of member states due to the reason that because member state losethe tool of monetary policy, every action of ECB would cause member states'attention. Fourthly, the conflict of the state interest and the institute beyondstate. The challenge of global economic integration compelled member statesspeed and deepens the procedure of the integration. But the difference ofinterest made them would not take out their signory. When they had to do so,they always restrict the carrying out the right.Section Four: analyze particularly the exchange rate fluctuate after thebirth of the Euro. The exchange rate of the Euro experienced three differentstages. The initial stage the exchange was higher due to: Firstly, demand.Secondly, the good expect. Thirdly, new money effect. The long secondstage: what is the reason of the exchange rate was so low? Firstly, theeconomic growth gap was large so that the exchange rate was low. Secondly,the interest rate gap caused the movement of international capital, whichinfluenced the rate. Thirdly, the negative attitude of ECB. Fourthly, the initialexchange rate was higher that it actual was. Stage three: from 2002 theexchange was increasing that was because US dollar was too weak not theEuro was too strong.Section five: the status of the Euro in the international monetary system.