The European Monetary Union is the deepest form of integration for EU members, it involves a single currency ( the Euro), a single bank and unified monetary policies and is aimed at unifying the European Markets.
Advantages of the EMU
- The main advantage of being part of the European Monetary is that this gives business more confidence as there is a fixed exchange rate for them to trade with international partners and invest in capital goods which would eventually shift the LRAS to the right.
- Another advantage is that it encourage tourism as there would be less red tape while exchanging large amounts of currency as they would not have to change any.
- A third advantage is that there would be a stable currency so business would be able to predict future makets more effectively which would unleash a potential to growth.
- The main disadvantage of the EMU is that a one size fits all strategy will not suit all currencies, e.g. Germany may require a different exchange rate to Italy due to higher GDP and lower inflation.
- Also if one country is in recession while another is not. The interest rate needs to be different for each equation.
Overall, the EMU can be good for the business in an economy but can have negative impacts on the economy as whole. Also if the EU starts to fall then this will have an effect on all the countries involved so they will have no chance to protect themselves.
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