The euro has eliminated exchange rate fluctuations and economic shocks between European countries. It has reduced inflation in the euro area from around 4% in the early 1990s to just over 2% recently. The euro has also increased price transparency, eliminated transaction costs for tourists and businesses, improved cross-border employment opportunities, expanded markets for businesses, and helped control inflation levels through the European Central Bank. However, adopting the euro means countries lost independent monetary policies and the ability to lower interest rates or devalue currencies in economic downturns.

1. The euro has eliminated the damaging effects of exchange rate tensions within Europe. In terms of
growth and employment the euro has eliminated shocks which were often costly in the past. It has
also enhanced the prospect of trade and investment within the countries included in the Europe.
The ERM (exchange rate mechanism) was set up to regulate the exchange between different trading
countries within Europe. The ERM II in January 1999, was the revision of the ERM. This provided the
framework to manage the exchange rates between EMU &non-participating member states to
ensure stability
Price stability
inflation has come down in the euro area from around 4% in the early 1990’s (much higher rates in
some countries) to just above 2% in recent years.
Price transparency
being able to easily tell if a price in one country is better than the price in another both for
consumers and business. With price equalisation across borders, businesses have to be more
competitive.
Prices still vary but consumers can easily spot a good deal.
Transaction cost.
Since the euro has been introduced transaction costs have been eliminated. It has been helpful to
tourists and others who cross several borders. Whereas before they had to pay to exchange their
money.
The Removal of transaction costs benefitted:
there are no longer any costs arising from buying and selling foreign currencies on the foreign
exchange markets.
It protects against adverse exchange rate movements.
There are no longer any costs for cross-border payments in foreign currencies which entailed high
fees.
there are no longer any need to keep several currency accounts.
Increased cross border employment.
People now are more employable across borders. With a single currency it eliminates difficulty for
people to cross into the next country for work, as their salary would be paid in the same currency.
Under the EC (European commissioner) treaty, individuals are entitled to move freely for work
reasons from one EU member state to another.
Cross border workers are people who work in one EU state but live in another.
Organisations of all sizes are taking advantage of the increasing ease with which human capital can
be shared across borders.
Expanding markets for business.
Business can expand more easily into neighbouring countries rather than having to set up different
accounting systems, banks etc. For transactions in countries other than their own, the euro makes it
simple to operate.

2. Macroeconomic stability.
Because of the European central bank (ECB), the introduction of the euro also helps to lower and
control inflation among EU countries.
Low levels of inflation are what make economies stable. High inflation rates are generally viewed as
undesirable and cause less investments to be made. When inflation is controlled among these
countries it encourages investment and therefor leads to the growth of economies within the
Euroland.
Disadvantage of the euro
The formulation of the euro has abolished independent monetary policies for every country within
the Euroland. When each country had their own currency if they ran into economic trouble that
country could then slash their interest rates and could also devalue their currency. This process
could be done by the central banks or the market would do so itself if recession was brewing and
lower interest rates were apparent.
Being able to slash interest rates and devaluing a currency are powerful recession fighting tools
which the countries of the Euroland have lost out on.
In respect to this disadvantage it could be considered a smart move by Britain to retain their
independent currency as the economic recession has not effected Britain as dramatically.