The Euro: Costs & Benefits for France

Résumé du document

On the 1st of January 1999, the euro went into circulation as a common currency for eleven of the fifteen European Union countries, with Greece joining in 2001. France joined in 1999. The ratification of the Maastricht treaty in November of 1993 provoked the creation of the European Monetary Union. Apart from making travel easier; this single currency makes very good economic and political sense. Indeed, using a single currency increases price transparency, eliminates currency exchange costs, and makes international and intra euro area trade easier. Therefore, it gives the European Union (and consequently France) a more powerful voice in the world. It is also a logical complement to the single market which makes it more efficient, now the EU can compete with the "Two bigs" (United States & Japan). The size and strength of the euro area also better protect France from external economic shocks, such as unexpected oil price rises or turbulence in the currency markets. However, the euro also has several drawbacks. All the countries belonging to the euro area are not equal in term of prices. The French economy is facing economic crisis and lower exportations since 2008. Why did the euro increase trade across borders within the euro zone? What are the main costs and benefits for the French economy?

Extraits

[...] Moreover, it has allowed a wider freedom of movement of capital in Europe, all of which has benefitted France. We can say that euro has clearly contributed to growth among the French economy. France can buy and sell in a bigger and more competitive market. The participation requirements of the euro pushed many EU member states who wanted to participate to get their economies in shape and improve their economic growth. The French economy has been planned to provide support to international trade with a number of important product and commodities. [...]

[...] The euro gives a large boost to the integration of financial markets across the euro area. Investors, such as banks, are no longer limited to local markets. Capital can flow more easily because exchange rate risks have disappeared and because financial market rules are being progressively harmonized, allowing investors to move capital to those parts of the euro area where it can be used most effectively. Then, businesses can expand more easily into neighboring countries; the euro makes simpler bank transactions. [...]

[...] But what do they mean in practice for everyone in the EU? Firstly, people are more easily employable across borders. With a single currency, it's easier for people to go into the next country to work. Indeed, their salary is paid in the same currency they use in their own country. Many French people are working in Spain, Germany, Italy or working in France but trading with these countries. For consumers, other advantage is the increase of competition which has led to lower prices, and a wider choice of things to buy. [...]

[...] It is a precious gain of time. What's more, with the Euro, there is no longer any risk of fluctuation between currencies. Interest and inflation rates are much lower. Indeed, because of the decrease of exchange rate risk, the Euro permits lower interest rates. In the past, when the whole Europe had their own national currencies, additional interest rates were charged to cover the risk of the exchange rate fluctuations. This risk is gone with the introduction of Euro. Therefore, you can buy, sell and borrow within a larger and more competitive market. [...]

[...] A major part of this foreign trade is carried out with European partners including Germany, UK, Spain and Italy. However, behind all these benefits we can distinguish several drawbacks First, we assist to an over estimation of trade benefits. Some economists argue that the trade and cost advantages of EMU have been grossly over estimated. With regard to aggregate trade, we confirm earlier findings that trade among member countries of EMU has moderately increased after the introduction of the euro. [...]