The Costs and Benefits of Joining EMU Case Study - 1

The Costs and Benefits of Joining EMU - Case Study Example The increasing interdependence among the European states is aimed at creating free mobility of goods, services, labour, and capital within the trade region (Debra, & Colin, 2007, p. 162). The EMU has increased the common rules among the member states to combine the separate markets and economies by increasing the economic coordination and cooperation and setting new competition policies for the member states. The EMU has created economic interdependence so as to eliminate monetary policies that undermine and distort benefits realized from such interdependency (Debra, & Colin, 2007, p. 162). For the EMU to function smoothly, the following feature must be present: The member states of EMU must surrender their sovereignty in some areas of policy formulation. Such areas include interest rates and exchange rates determination, and constraints acceptance in macro-economic exercise (Debra, & Colin, 2007, p. 163). The politicians from the member states of EMU are required to undertake unpopular policies required for a state to qualify to be a member of EMU, and also introduce economic structural reforms that will ensure their country’s economies survive within the economic and monetary union. However, reluctance among the major European Union community has led to serious problems of EMU. The above feature and condition do not determine whether the European Union has an ideal environment for using the common currency. The optimal currency areas (OCAs) theory sets the preconditions for use of common currency among states. For the EMU to succeed in using the common currency, the following conditions must be fulfilled: Though the EMU has been launched, some of these conditions appear to be lacking within the European Union trade region. However, some benefits have gained by the European Union countries for being members of EMU. The main perceived benefits of joining economic and monetary union include low costs of the transaction, single market consolidation, the convergence of prices, stabilization of foreign exchange rates, and price stability (De Grauwe, 2005).