Effect Of Euro On International Economy

The Effect of the Euro on the International Economy

The Euro is the common name for the bank notes and coins used by over 317 million Europeans(Wikipedia). It was introduced to the European Monetary Union economy in 1999 under the Maastricht Treaty on European Union. It was first used as an accounting currency only and it was not until 2002 that it began circulation as money. It is currently the second most valuable money in the world, falling only behind the British Pound. The effects of the Euro are far-reaching, touching such things as the price of crude oil, world tourism, and how businesses operate. The colored countries currently use the Euro.

The current value of the Euro is only slightly behind the British Pound, but in money terms very far ahead of the dollar. The effect of the exchange rate is that more Europeans have flocked to America for travel and vacations because their money will go so far here. This is very beneficial to America not only economically but also politically. The tourists who come here bring their money and purchase the services and goods in America, but they also affect the relations their country has with America, and vice versa. The countries using the Euro and sending tourists to America will want to maintain peace and benign relationships with America.

Euro to dollar

Euro to British Pound

Regarding business influenced by the Euro, theoretically there should be increased profitability for those countries utilizing the unionized currency.("Euro-Zone Economy") By removing the costs and drains imparted by exchanging currency, the lost revenue should now be equated to increased profits . By maintaining their economic union, the countries belonging to the EU are also able to travel in and out of the other member countries without having to worry about exchanging their money. All member countries honor the Euro whether it was produced in Germany or Slovenia. There is no need to exchange one Euro for another, or one Euro for another currency altogether.

One of the biggest effects of the Euro on the international economy is that of trade. The Euro actually may have a negative effect for many countries when applied to trade. Because the value is so much higher than nearly all countries, everyone but Britain must pay higher amounts for their imports from the EU products. While this is good for the EU in the short-term, there is the possibility that their prices will eventually be too much for the importing countries to pay, and this will stagnate the trade between those counties. Applied to America, this trade effect can be good in that many Americans may then turn to American made, thus increasing the benefits to our own economy.

One critical aspect of trade that the Euro has affected is the price of crude oil. There is a movement by OPEC, the Organization of Petroleum Exporting Countries, currently gaining steam to utilize the Euro in pricing of oil in place of the Dollar.

Because the Euro out values the Dollar, OPEC has lost purchasing power in Europe. This is a negative for the OPEC members, who as a business want to attain the most profit possible.

However, the change from Dollar to Euro would have not only economic impacts, but also political and symbolic.("OPEC Mulls Move to Euro for Pricing Crude Oil") The US has long been viewed as the powerhouse nation. By departing from the dollar, OPEC is essentially saying to the world that the US is no longer the powerhouse it has been. This change in view can not even begin to be comprehended; so many aspects are affected by the representational image of America.

Aside from the symbolic damage caused by a move to the Euro, the economic impact on oil trade is also important. If OPEC were to use the Euro as the standard for pricing crude oil, "...any country...using the U.S. dollar for pricing would see the cost of the commodity rise as that currency fell."(23) The US economy has had to absorb the depreciation of the dollar by paying more for their crude oil. If the Euro had been used to price oil, a barrel of gallon in 2004 would have been ten dollars less than what was being paid.

The very fact that OPEC is even bringing up the topic of changing the pricing of their crude oil to the Euro instead of the US dollar is an indication of the power it has gained in its 8 years of existence. The strength of the impact of the Euro can not be concluded in such a short time period, however current results indicate that the acceptance of an economic union can be a very beneficial move, both for the members of that union and for the international economy as a whole.

Current Exchange Rates

Euro

click on values to see graphs

1 EUR

in EUR

American