Group project for ECON 443: International Money class analyzing four European Union member states outside of the Eurozone. This presentation is modeled directly from the essay prompt, where we explore the advantages and disadvantages of maintaining independent national currency, difficulties encountered by each member during the European sovereign debt crisis, and key takeaways.

1. OPTIMAL CURRENCY AREAS AND
THE EUROPEAN EXPERIENCE
Isabel Ongpin | Nhi Quach | Arturo Solano | Jorge Vargas

2. • Pros / cons of not adopting the
__common currency system
• Did non-Eurozone membership make it
__easier or harder to deal with the
__European debt crisis?
• Lessons we can take away from this
KEY TOPICS

3. DENMARK
UNITED KINGDOM
ROMANIA
POLAND
EUROPEAN UNION MEMBERS
OUTSIDE OF THE EUROZONE

4. DENMARK
HOME OF THE “HAPPIEST PEOPLE IN THE WORLD”
Danish citizens do not share the same enthusiasm
for the euro currency with Parliament.
During the Danish referendum in September
2000, the decision to reject adoption of the euro
won by a margin: 53.1% to 46.9%.

5. DENMARK
PROS / CONS OF NOT ADOPTING THE EURO
PROS
• Independent currency allows them to
__maintain national identity
• Maintain high standard of living
• Keeps fiscal policy spillovers at
arm’s length

6. DENMARK
PROS / CONS OF NOT ADOPTING THE EURO
CONS
• No price transparency and stability
• Higher transaction costs
• Exchange rate uncertainty
• Lack of collaborative efforts to push
__for fiscal discipline

7. DENMARK
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
DIFFICULTIES
• Possessing independent national
__currency, the Krone, posed problems
__during the European sovereign debt
__crisis.
• Exports took a hard hit; comprises of
__large portion of Denmark’s GDP.
• Political oppositions between voters
__versus Parliament is problematic.

8. POLAND
BRINGING YOU KIELBASA AND MARIE CURIE
Poland’s high-income economy is considered to
be one of the healthiest of the post-Communist
countries and is one of the fastest growing
within the EU.
Having a strong domestic market, low private
debt, flexible currency, and not being dependent
on a single export sector, Poland is the only
European economy to have avoided the late-
2000s recession.

9. POLAND
PROS / CONS OF NOT ADOPTING THE EURO
PROS
• Satisfy the masses by maintaining status
__quo – 60% of Polish citizens were against
__adopting the Euro.
• Actually better for the Polish economy;
__during crisis, weaker economies get hit
__hardest.
• Freedom to devalue the local currency.

10. POLAND
PROS / CONS OF NOT ADOPTING THE EURO
CONS
• Missing out on the positive impact on
__the perception of Poland and its debt
__market.
• Maintaining national currency creates
__a bit of a trade barrier in terms of
__currency exchange fees.

11. POLAND
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
EASIER
• In 2010, the Eurozone debt crisis
__caused Poland’s interest rate to cool.
• Evaded the recession during its worst
__days, because the Zloty was allowed
__to depreciate, making exports more
__competitive.
• It was the only EU member state that
__did NOT post a negative growth rate
__post-crisis.

12. POLAND
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
DIFFICULTIES
• Despite being outside of the Eurozone,
__still found itself intertwined with its
__troubled neighbors; about 55% of
__Poland’s exports end up in the euro
__area, especially to Germany, where
__growth has slowed.

13. ROMANIA
EUROPE’S RICHEST COUNTRY IN GOLD RESERVES
Romania has been a member of NATO since 2004,
and a member of the EU since 2007.
Its economy is predominantly based on services,
and is a producer and net exporter of machinery
and electric energy.

14. ROMANIA
PROS / CONS OF NOT ADOPTING THE EURO
PROS
• Avoidance of adjusting to economic
__shocks stemming from the EU
• One size does NOT fit all – differing
__inflation rates in Romania vs EU
__monetary policies
• Maastrict Treaty would not be as
__effective for a small country like
__Romania

15. ROMANIA
PROS / CONS OF NOT ADOPTING THE EURO
CONS
• Out of sync with business cycles
__occurring throughout the EU
__countries
• More difficult with involvement in
__economic unity with cross-border
__trading + efficiency gains from
__market integration.

16. ROMANIA
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
EASIER
•Avoidance of the effects from the
_European debt crisis – the Eurozone
_fell into recession in Q3 2008.
•Did not follow the example set by
_Greece, another small country.
• In 2006-2007, the Romanian Leu
_actually appreciated significantly
_against the Euro.

17. ROMANIA
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
DIFFICULTIES
•The financial crisis made the
_Eurozone more attractive as a safe
_haven.
•Integration with the euro would
_have acted as a wall of protection for
_Romania from the volatility of
_exchange rates.

18. UNITED KINGDOM
WHERE 162 MILLION CUPS OF TEA ARE CONSUMED DAILY
The United Kingdom negotiated an opt-out from
the part of the Maastricht Treaty of 1992 that
would have required them to adopt the Euro.
Over the years, different administrations in
Britain have reaffirmed that they will NOT join
the Eurozone, and polls suggest the majority of
Brits are against ever doing so.

19. UNITED KINGDOM
PROS / CONS OF NOT ADOPTING THE EURO
PROS
• The euro would cause a loss of
__economic dominance and foreign
__influence for the U.K.
• Not losing fiscal flexibility – can abide
__own nation’s rules outside the confines
__of EU’s.
• Evades possible negative inflationary
__impacts of interest rates of the euro.

20. UNITED KINGDOM
PROS / CONS OF NOT ADOPTING THE EURO
CONS
• Missing out on currency stability inside
__the U.K., and reduction throughout
__Europe and the rest of the world.
• Logistical headaches with respect to
__time it takes for currency exchange
__across borders.
• Outside of the euro unity; national
__responsibility for fiscal policies.

21. UNITED KINGDOM
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
EASIER
• Sharply devaluating the £ helped the
__U.K. during the European debt crisis.
• The U.K. was able to adjust rates and
__control inflation better than the
__Eurozone.
• During the crisis, some Eurozone
__countries dragged other members
__down due to obligation of bailouts.

22. UNITED KINGDOM
HOW DID THEY FARE DURING THE EURO DEBT CRISIS?
DIFFICULTIES
• It is said that the U.K. may have been
__shielded from the crash by NOT
__joining the Eurozone.

23. IN RETROSPECT
WHAT LESSONS CAN WE LEARN?
DENMARK
Do not implement bad monetary and fiscal policies.
POLAND
Do not fear the euro - embrace being an actor belonging
to the core engaged in building a new Europe.
ROMANIA
Romania just isn’t ready to join the Eurozone, but should
probably consider doing so in the future.
UNITED KINGDOM
Maintain monetary sovereignty. A country like the U.K.
requires flexibility of a floating currency.

24. CLASS DISCUSSION
Questions / Comments / Concerns