The single European market: integration and economic effects

¶ … European market has been an issue at the center of world economics for many years. Some feel that a single European union is essential to the stability of world economic markets, while others believe that a single European market will give the European market a considerable amount of economic power.

The purpose of this paper is to define and discuss in detail the concepts and ideas of the single European Market.

Single European Market

According to a book entitled "The European Monetary System and European Monetary Union" the single European Market is a product of what began as the European Community of 1978 (Fratianni and Von Hagen). The book explains that the European Monetary System (EMS) was designed to be a single European monetary system (Fratianni and Von Hagen). The authors assert that the EMS was designed in an effort to "strengthen the coordination of monetary and economic policies among the members of the Community, to stabilize exchange rates, and to take a new step on the road of monetary unification in Europe (Fratianni and Von Hagen)."

The book also explains that the EMS came about after several attempts to stabilize exchange rate among members of the European community (Fratianni and Von Hagen). The European Monetary System proved successful in stabilizing the exchange rates of union members (Fratianni and Von Hagen).

In addition, the book reports that the EMS is the only operating multilateral exchange rate system among industrialized countries since the Bretton Woods agreement (Fratianni and Von Hagen).

In time the European Community developed a plan to introduce a single currency into the market, this was know as the Euro. A book entitled "The Political Economy of European Monetary Unification" explains that the European Unification also led to the formation of the European Central Bank. The book asserts that the single currency system has affected Europe in a positive manner. The book contends that,

Transactions costs have been reduced by the advent of the single currency, stimulating intra- European trade and capital flows. Interest-rate differentials have narrowed now that the separate monetary policies of the founding member states have been replaced by the single policy of the ECB. 1 European finance is being transformed by the explosive growth of eurodenominated bond issues, strategic alliances among national stock exchanges, and a continent-wide wave of bank mergers as the advent of the euro creates for the first time a truly continental financial market (Eichengreen and Frieden)."

The authors also explain that the creation of the European monetary Union was and is a very political process (Eichengreen and Frieden). The book explains that admittance into the European Union is an extremely political process (Eichengreen and Frieden). The current members of the European Union that share a single currency include Italy, Germany and France. In addition, the authors contend that the people that are placed in power to control the European Central Bank are chosen in a political manner (Eichengreen and Frieden).

The book also explains that there are those that support or oppose the European single currency. Both the support and the opposition came from interest groups and some members of the Union.

The authors contend that the decision to support or oppose the single European currency is based on the perceived impact of the currency.

It was doing the Machistriict treaty that the design for the implementation of a single European currency was developed (Eichengreen and Frieden). The book explains that the currency was to be implemented in three stages. During the first stage exchange rates were to be solidified, the removal of Europe's outstanding capital controls and the succession of all EU member states to the ERM (Eichengreen and Frieden). In the second stage of implementation, members of the European Union would secure the autonomy of their national banks (Eichengreen and Frieden). Member states would also attempt to meet the convergence criteria that was created to "facilitate the harmonization of their economic policies and to distinguish member states prepared to live with the consequences of a single monetary policy from those lacking the requisite commitment (Eichengreen and Frieden)." During the third and final stage, the European Central bank would be in operation. According to the agreement, this was to occur no later than 1999 and for three years thereafter Euro coins and banknotes would be issued (Eichengreen and Frieden).

By 2002, the Euro had been implemented as the single currency for member states. However, the implementation and consequent use of the Euro appeared to be a bit rocky. According to an article found in the journal Challenge, the value of the Euro had fallen slightly. The author blamed this fall on the central bank and its efforts to shore up the Euro (Bibow). The author contends that this unrelenting support stifled economic growth. According to the article

Between the start of 1999 and October 2000 the euro lost some 20% of its initial external value (even 30% vis-a-vis the U.S. dollar). After a brief rebound toward the end of 2000, the euro fell back close to its historical trough and dangled around $0.85 by mid-2001. Among other things, pronounced euro weakness pushed up prices in the eurozone. Consumer price inflation has quadrupled since the euro's inception (accelerating from 0.8% in January 1999 to 3.4% in May 2001). (Bibow)"

The article reports that the creation and implementation of the Euro into the market was not a simple transition. The author explains that some member states, most notably Germany, were already having difficult economic times (Bibow). The author asserts that the poor economic condition of Germany was another prime reason for the fall the Euro. The article reports that between 1992 and 1995 the real domestic growth of Germany only averaged 1.5% (Bibow). In addition, there were high levels of unemployment (Bibow). The article explains that to combat this problem Germany developed a tight-money policy (Bibow). This policy was not a sound economic policy and resulted in the further demise of the German economy. As a result, the German company lagged behind as America's and the economies of other nations soared (Bibow).