Academic journal article Economics, Management and Financial Markets

The Euro and World Indexes before the Great Recession

Academic journal article Economics, Management and Financial Markets

The Euro and World Indexes before the Great Recession

Article excerpt

1. Introduction

The euro was introduced on January 1, 1999 at the beginning of the expansionary phase of the business cycle. However, a brutal global recession unfolded and the performance of the euro was scrutinized because the late Nobel laureate Milton Friedman predicted that the survival of the euro through a harsh recession was going to be tested.

The purpose of this work is to test whether the euro has become a stabilizing factor because it has harmonized the political, economic, and monetary relations among Member States, nurturing a positive environment to improve the labor market and job creation.

This work will prove that the efforts to adopt the euro led to an improvement in Member States' financial and economic situations. In fact, Eurozone Member States have enjoyed until 2009 sustained economic growth, low inflation, a reduced unemployment rate, and a world-wide recognized currency, all of which has boosted economic, monetary, fiscal, political and social stability. The harmony between monetary and economic policies has led to a synchronization of the monetary and economic performance of Member States, which, in turn, has sparked the beginning of what can be considered the European business and economic cycles. Hence, the euro has stabilized the Eurozone

The introduction of the euro has forced governments to comply with a number of monetary and economic requirements and to introduce a number of structural reforms in order to foster innovation, productivity, and competitiveness. These three key components are necessary for the support of the euro, the improvement of the performance of Member States' labor markets and, more importantly, the position of the Eurozone as a strong economic power in today's competitive and globalised world.

This harmonization of economic and monetary performance has helped regional integration among Eurozone Member States to the point that the European Union (EU) has become an icon of successful regional integration. Despite this success, the ongoing integration process has two different speeds; while economic integration has been fast, steady, and assertive, political integration has been slow and sometimes demoralizing. This is justified by the complicated idiosyncrasy of the EU structure. However, the integration difficulties are being viewed with a dangerous complacency. In fact, many voices are claiming that the EU integration process has come to an abrupt end due to the latest difficulties in encouraging important structural reforms, implementing sound economic requirements, and struggling to agree on the Treaty of Lisbon. Gros and Micossi (2008, 3) have stated that "the EU's inability to meet the challenges of integration is due to rigid economic structures and inadequate human capital." In this sense, since the creation of the European Union (EU) there has been an academic debate concerning whether economic integration precedes political integration or vice versa. Some assert that political decisions are the propellers of regional integration and, as Balassa (1961, 129) states, "political motives may prompt the first step in economic integration." On the other hand, El-Agraa (1989, 10) explains that political decisions have been motivated by economic reasoning. Similarly, Nieminem notes (2005, 91) that historical evidence proves that "descriptions of fluctuations of international economic integration identify clear economic dynamics behind political decisions." In fact, according to G. Schroder (2008, 1) "the creators of the euro envisioned it as an instrument to promote political union."

This study therefore concludes that the introduction of the euro has facilitated the EU's regional integration process, which encompasses economic, monetary, and political integration. Further, this work proves that until the "great recession" hit the EU in 2009, it has not only become a successful common but also international currency because since the introduction of the euro countries have been, to different degrees, complying with the necessary requirements to maintain a stable euro which has, in turn, allowed Europe to blossom "into a continent that is widely admired as prosperous, diverse, and caring" (Deppler 2007, 5). …

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