Europe as an Optimal Currency Area Essay Example | Topics and Well Written Essays - 750 words

Europe as an Optimal Currency Area - Essay Example The debate about Europe as optimum currency area as an important and heated point of discussion for the economic experts and analysts and there have been different standpoints presented by the experts to regard and disregard Europe as optimum currency area. The main elements identified within the definition of optimum currency area could effectively work to decide if any region could be regarded as optimum currency area or not. Likewise, Europe could also be evaluated as an optimum currency area by looking at some specific criteria like asymmetric shocks, degree of openness, international factor mobility, labour mobility, fiscal transfer, product diversification and trade and business cycles similarities etc. (Krugman and Obsrfeld, p98) The economy and labour market of Europe has been analysed by the experts from these perspective very frequently and most of the analysis and observations have concluded with the results that Europe could not be regarded as an optimum currency area bec ause it does not completely complies with the criteria set for the OCA. However, it is also a fact that most of the economic experts and analysts believe that Europe has great potential to become an OCA and in coming few years the situation would be evolved where Europe will head to appear as an OCA (McKinnon, p173). The experts arguing against the status of Europe as OCA put forward the evidences in support of their stance. It is found that free mobility of labour within the regions of Europe is not high. The labour mobility in Europe has been recorded one third of the mobility found in United States. It implies that Europe lag behind in proving itself as area of free labour mobility. Similarly it is also found that Europe is yet to establish system for extensive and automotive intra-European fiscal transfers and currently there are not enough fiscal transfers between the European countries that it could be regarded as OCA. The existence of common currency is also an important char acteristic of optimum currency area. It is imperative that the OCA should have one central bank to manage all the monitory policies in the region and the member countries use to follow the same policy as formulated and implemented by the central bank of the region. There should be single currency with fixed exchange rate system. The launch of Euro is often cited as an evidence to prove Europe as OCA however, it is also a fact that despite the use of common currency the European countries yet to have common monitory policies and they need more time to create common fiscal and monitory policies like that of an OCA (Tavlas, p211). The degree of commodities' market integration within the union members also determines the optimum currency area. In Europe, there are some countries like Britain where there is higher level of reliance upon the export of high technology commodities whereas there is also large proportion of owner occupiers in the country links with the variable interest rates (Tavlas, p211). It implies that the market integration does not take place in similar production strategies among the members of the union but there are differences in the exports and import patterns of the countries. This trend also evident that Europe is

Written Assigment II Essay Example | Topics and Well Written Essays - 500 words

Written Assigment II - Essay Example The one that enjoys a higher comparative advantage, for instance computers, should form the primary export while textile, whose production has a lower comparative advantage, should be imported from China (Frederking 3). In this paper, I hold a contrary view to Patrick Buchanan by supporting Ricardo’s theory. Countries chose to engage in international trade with a view of making profits. It would be totally illogical to engage in a business activity where there is no overall profit. As such, the driving force of international trade is the hope of maximizing profits accrued in the production of a given product. In this view, nations engaged in international trade strive to strike a balance by increasing the unit value they gain by exporting a given product. While this takes place, the same country would strive to reduce its engagements in products that do not earn as much profit as the others by the virtue of their production costs. Therefore, in an international trade, a country which exports gains more than that which imports. This is because exporting countries enjoy a favorable balance of payment than those which import (Ritchie 19). The utility derived from utilizing factors of production differs in the production process of different products. For instance, in the case of computers and textile products, it is evidently cleat that United States of America spends less per unit of factors of production when it concentrates on computers than when it concentrates on textile products. In this sense, U.S. is bound to increase its overall profit if it converts the factors of production used in the manufacture of textile products to the manufacture of computers. As such, textile industry becomes the opportunity cost of production of computers. Similarly, China is bound to increase its profitability if U.S. chooses to concentrate on importing its textile products. As such, free