Homogeneity of Economic Performance of the Euro-Land: A Statistical Analysis

By Yu, Tyler Tieliu; Zhang, Miranda Mei | Review of Business, Winter 2005 | Go to article overview

Homogeneity of Economic Performance of the Euro-Land: A Statistical Analysis


Yu, Tyler Tieliu, Zhang, Miranda Mei, Review of Business


Abstract

The emergence of Europe as an increasingly united community will be one of the significant developments in the 21st century. Europeans have come a long way from the 1957 Treaty of Rome, which dealt primarily with the trade of iron and steel, to the 1992 Treaty of Maastricht (ratified in 1993), which set the tone for the European Union. Although they still have to cope with several harmonization and standardization issues, the European Union is well underway within the Economic European Community. This paper examines the economic performance of the member countries of what is sometimes referred to as euro-land. We will employ the following four variables-GDP, pre-euro-dollar exchange rate, euro-land inflation, and unemployment rate--as indicators of current unity of the member countries, and forecast the future of the euro based on these four determinants.

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Introduction

Although the United States has received significant support from its European allies in the war against terrorism, the differences between the two entities remain. On the surface, the differences are between their attitudes and approaches toward issues such as the death penalty, missile defense systems, global environment and more recently and significantly, policies toward Iraq, to name a few. The dominating factor underlying these differences has become clear: the European Union wants itself to be an equal partner, not a surrogate or a subordinate to the United States. As stated by French President Jacques Chirac during President Bush's meeting with his 18 NATO counterparts on June 13, 2001 in Brussels, Belgium, "The progress made toward a European defense is irreversible, since it is part of a deep-seated and more general trend toward European integration. The emergence of a European Union fully taking its place on the international scene is now a historical fact of life."

The European Union, with its recent expansion to include 25 member countries, will undoubtedly reshape the international political and strategic paradigm of the 21st century. However, "This (development) has been the central contradiction in U.S. foreign policy for the past 50 years," observed Philip Gordon, a European expert at the Brookings Institute in Washington. "Democrats and Republicans alike have wanted to see a more united and stronger Europe, but as it comes about in practice, every administration since 1950 has gotten increasingly nervous about it [19]. Most people in the U.S. also have a difficult time understanding the concept and significance of the development of the European Union. As explained by Robert B. Zoellick, the U.S. Trade Representative, most Americans don't grasp the impact of "shared sovereignty."

One of the critical questions about the European economic integration, especially its common currency, the euro, is the impact of differences among member countries--in terms of economic development and future growth--on the ultimate success of the unity. As stated in their convergence criteria, the fate of the euro's success will at least partially depend upon the member countries' ability to keep their economic development and growth at par with the general norm of the unity [4]. The homogeneity of the member countries' economic performance is crucial because one country's monetary policy, for example, will have impact on other countries' economic performance, since there is only one currency in circulation. That being the case, the more homogeneous the member countries' economic performance is, ceteris paribus, the easier it will be for the European Union to stabilize the currency.

It is, therefore, important that we understand the political and economic development of the European Union. If the Europeans can successfully maintain a stable common currency, which has completed the initial economic goals set for the unity, then it would not be a surprise that the political unity will not be far from reality.

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