Monetary Union Essay

585 words - 3 pages

There are many pros and cons in the world having a monetary union. I believe that having a monetary union is more beneficial. Over the summer, I went to Germany and Czech Republic, both having their own currency. Germany used Euros as their form of currency, while Czech Republic uses Crowns. I dealt with exchange rates and banks.
Some of the advantages are that a single currency should end currency instability in the involved country. By having one currency, the world is set up for a greater potential for growth. Consumers would not have to change money when traveling across borders. Changing money is a waste of valuable time to consumers. Business would no longer have to pay hedging costs which they do today in order to insure themselves against the threat of currency fluctuations. A single currency should also result in lower ...view middle of the document...

This means that a countries’ economy could be brought down due to another country in the monetary union being weak.
Greece and its private creditors are in the process of completing a “debt swap” in order to bail the country out and avoid an uncontrolled default. Greece is now considered to be "junk" by the ratings agencies, meaning it has a very high chance of defaulting. S&P has cut its debt seven times since 2009, from A to CC, the third-lowest rung on its rating scale. If Greece does not complete this deal, then Europe may be in a great deal of trouble. Some economists believe that there will be a domino effect on the countries in Europe.
Italy has the highest total debt in the euro zone, among stagnant growth. In the summer, the country was charged record interest levels to borrow, which prompted renewed calls to pass spending cuts. Italy has the advantage of having most of its debt owed to its own people rather than external investors. This gives their country more time to payback their money than Greece does.
Portugal is another country that is on the verge of needing to be bailed out. The country’s economy is shrinking and is now putting a strain on its budget. Investors have stopped putting money into Portugal after what has happened in Greece and Italy. Portugal’s credit rating has fallen to a rating of BBB-.
Greece’s financial crisis caused a domino effect in Europe. Once Greek banks were defaulting, European banks that were dependent on Greek banks were directly affected. As these banks had to write off losses, fear and uncertainty spread regarding which banks had bad loans and whether they had enough capital to pay off their debt obligations. As banks became reluctant to lend money to each other, the interest rates on interbank loans increased. A number of European banks failed and stock market indexes declined worldwide.

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