Globalization and the European Economic and Monetary Union

Abstract

The process of the European Integration can be divided into two stages: the first stage consists of the sector integration (coal and steel, agriculture and trade) and the second consists of the macro-economic integration that forms a EU-wide single or national economy. The second stage is known as a process forming a European Economic and Monetary Union (EEMU).
The EEMU with 370 million people not only provides companies and financial institutions with capacity to compete with American counterparts. The EEMU with a single currency also guards peripheral countries and small and medium-sized countries in the Euro area against volatile fluctuations of exchange rates, and makes them possible to save currency transaction costs.They can enjoy low interest rates the Euro proposes. In the contemporary global capitalism, the benefits of the EMU-type integration are so big that most countries in the EU want to participate. Though Denmark rejected the participation in September 2000, the country is protected with the ERM 2.
The theory of optimum currency areas is generally negative about the European single currency mainly because Europe is lacking in crossborder labour mobility, rigidity of real wages and poor federal budget of the European Union. But as industrial structure of main European countries is fairly similar, intersectoral labour flows in a country can work as substitute for crossborder labour mobility. Instead of the lacking federal transfer, the budgets of EMU member countries reduces adjustment costs asymmetrical shocks will generate. The wage rigidity did not impede the success of the EMS with no parity change.
The other tool Europe made use of against the fierce competition in the global capitalism is regional integration agreements with central and eastern European countries. They facilitated exports of the European Union and help it recover to relatively high economic growth after 1997.