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To what extent do the benefits of membership of a monetary union

such as Eurozone outweigh the costs?


Monetary Union-group of two or more countries sharing single
currency
Benefits-reduce transaction costs, trade increase lower price likely
to concumers
Members will see increase in exports(injection) to circular flow,
multiplier effect take place. Increase export, incr employment then
consumption AD shifts
Even though imports withdrawal, lower costs for firms importing raw
materials, money use to invest and consumption increase

May increase confidence as price transparency occurs can compare


price
In theory should increase consumption
Reduced uncertainty, ER and fluctuation
This is where Euro has been successful as it is stable
Leads to higher business confidence
Shift AD, accelerating economic growth and reduce spare capacity

ECB in control, loss in Monetary Policy power


One size fits all
UK has 70% home ownership, German 30%
UK likely has more mortgages
Housing market is larger in Greece and Spain
Recent 110b bailout proves it didnt work
17 countries in EMU, too many to be optimal currency area


Loss of sovereignty
Highly important for inhabitants in a country
UK heavily interested in their history and traditions
Many social unrest due to rise in immigration
Arguably national identity is being lost due to globalization

Transitional costs for Grexit, funding to support debt payments,


deficit funding and bolster reserves for new currency
Doesnt include bank recapitalization via nationalization, could jump
tens of bil

Overall benefits do not outweigh as countries have to be bailed out


Delaying any hope of recovery from 2009 recession
Many countries did not meet the convergence criteria anyway, incl
UK
Therefore should stay away

Benefits are far more focused on micro side, costs with macro
Arguably macro benefits more important during recession
Even though Eurozone has failed, costs for monetary union some
may be successful