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A brief review of the euro
The euro was launched on January 1st 2002. With this change, the core countries of Europe have finally achieved a genuine union between their peoples and removed the political shadows hanging over the region since the Second World War. But the euro project is not primarily about political peace and stability; it is about achieving sustained economic growth and rising living standards for all those in the new eurozone.
Here, the Federation of European Employers (FedEE) briefly reviews the issues surrounding the launch of the new currency.
Question: Why was the euro introduced?
Answer: There are numerous reasons for introducing a common currency. For most EU countries today, the majority of international trade is with other EU members. By removing exchange rate risks from the internal market, cutting the costs of transactions, and encouraging firms to trade across national borders, the common currency has made the eurozone into an area of monetary stability in Europe. It has also forced EU states to adopt responsible economic policies that contain inflation and increase real living standards.
Question: Which countries are in the eurozone?
Answer: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, the Slovak Republic, Slovenia and Spain.
Question: How does the eurozone operate?
Answer: General economic responsibility for monetary union is vested in the Council of Economic and Finance Ministers (Ecofin) and the European System of Central Banks (ECSB). Monetary policy, however, is the domain of the European Central Bank (ECB). The ECB is charged with maintaining stability for the euro and has sole responsibility for adjusting interest rates. The European Council, made up by the heads of state of EU governments, is the body that decides who will be allowed to enter the single currency. The European parliament must be consulted on all legislation concerning the euro and on key appointments to the ECB.
Question: When was the new currency issued?
Answer: The initial conversion to the euro was the largest civilian project ever undertaken in the history of the world. It involved a massive publicity campaign and logistical exercise extending across 12 nations and over 300 million people. In many eurozone states the euro was made available to clearing banks and major corporations during the late autumn of 2001. The currency formally entered into circulation on January 1st 2002 and ran in parallel with national currencies until the end of February 2002. National currencies for countries within the eurozone are now no longer legal tender.
Question: Why are three EU member states refusing to join the eurozone?
Answer: Greece and Sweden were originally excluded from the zone because they did not meet the entry criteria in full. Greece was subsequently admitted, but the people of Denmark and the government of the UK decided to remain outside the zone during the first wave. No economic justification exists for these two states to remain outside the zone.
Question: How does the single currency affect EU member states outside the zone?
Answer: The 12 EU member governments outside the eurozone cannot take part in the 'Euro-15 Council' that deals with economic and fiscal policies within the common currency area. Member states not in the first two waves must nevertheless avoid excessive government deficits and continue to regard their exchange rate policies as a matter of common interest. They have no representatives on the board of the ECB and no voice in decisions about eurozone interest rates, even though these will directly affect the value of their own currencies.
Question: Have eurozone states lost their sovereignty and economic autonomy?
Answer: All economies are vulnerable to external monetary speculation that places national independence at the whim of global financial markets. By pooling national interests, governments are protecting their new currency from external speculative influences and achieve greater control over their economic policies. This will provide more stability and encourage the growth of the European economy.
Question: Do states such as the UK currently qualify for entry?
Answer: Yes. If the UK wanted to enter the eurozone today, it would probably qualify to do so. The current UK Chancellor, however, has announced that there is no prospect of euro entry during the forseeable future, even if the UK meets all the entry criteria.
Question: How does monetary union affect the HR professional?
Answer: The initial problem was the effect of the changeover upon payroll/pension systems and the need to prepare the workforce/retirees for dealing with the new denominations.
The existence of a common currency makes it easier to perform pay comparability across national borders and this has had some impact upon wage negotiations. There are, however, few signs that this is leading to widescale pan-European collective bargaining.
In order to maintain the internal economic discipline between eurozone states, pressure has been applied to any state that experiences inflationary problems arising from excessive wage demands. This has led to 'de facto' incomes policies being followed by all eurozone governments over and above the tripartite accords that frequently exist at a national level. Increasingly, the tax and social security systems will be used to punish or reward compliance with wage norms. Over the longer term, widely contrasting net pay outcomes for people carrying out similar jobs across the eurozone will not be sustainable. Some degree of income tax harmonisation will inevitably be required to reduce national differences in the 'tax take'.
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