Europe in 2010

Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people,
goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is
underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound
economic policies and to coordinate these policies very closely.

As trade between the EU Member States reaches 60% of their total trade, EMU is the natural complement of the single
market. This market will work more efficiently and deliver its benefits more fully with the removal of high transaction costs
brought about by currency conversions and the uncertainties linked to exchange rate instability.

EMU and the economic performance of the Euro area will have their largest external effects on neighboring economies in
western Europe and on developing and transition countries with important trade and financial links to Europe, including
countries that link their currencies to the Euro. Among emerging market economies, those likely to be most affected are the
transition countries of the central and Eastern Europe and the Baltics.

The global environment has been favorable in a number of respects for the transition to EMU and the achievements of its
objectives. The strong demand for euro-area exports from industrial countries at more advanced stages of the business cycle
and the depreciation of the currencies of euro area countries over the past four years fostered a strengthening of growth in the
euro area and helped to offset the effects of the Asian crisis.

There are also challenges for EMU in the global economic environment:

The crisis in Asia and other emerging market economies could produce adverse spillover effects and make the monetary
policy more difficult to carry out.
The continuation of the crisis could result in weakening of the external demand, which, in turn, could dampen confidence
and domestic demand.
The financial market volatility could increase the uncertainty in assessing the economic indicators.
The economic crisis in emerging markets could influence the commercial banks in the euro- area to make substantial
provisions for non-performing loans.


It is, of course, impossible to predict the properties of the behavior of the exchange value of the Euro. With regard to broad
trend, it seems likely that the Euro will tend to appreciate against the U.S. dollar and pound sterling over the next few years, but
depreciate against the Japanese yen when Japan’s economic recovery begins. The United Kingdom and the United States have
reached relatively advanced stages of their cyclical upswings, with resources more fully utilized than in the euro area, the Euro’s
initial value comparing to the pound and the U.S. dollar can reasonably be considered to be below its medium-term
equilibrium. As the economic recovery in Europe proceeds and the growth in the U.K. and U.S. economies slows, the Euro
will most likely appreciate against those currencies. On the other hand, Japan economy remains in the critical position. The
resumption of moderate growth will lead to a recovery of the yen. Thus Euro is expected to depreciate against the yen over the
next few years.

According to some widely made predictions:

Euroland's capital markets, from equities to corporate bonds to municipal finance, will grow exponentially in coming
years as the removal of cross-border currency risk drives pan-European markets.

The Euro will stand alongside the dollar as the second-most-important currency in the

world, reflecting its coming role in global trade and finance as well as its common usage by 290 million Euroland

The new central bank has been given the independence to pursue price stability as a

primary objective. This feature will affect the credibility of the ECB positively and thus the investors would see the
Euro as a stable store of value in the next decade.

Once the single currency takes effect, the national central banks of the euro area will

reduce their international reserve holdings. Trade within the euro area will be denominated in a single currency and
will no longer need to be backed by international reserves. Estimates of the EMU countries’ resulting surplus of
international reserves range from $50 billion to $230 billion.


The scenarios that are presented in the European Commission Forward Studies Unit’s report regarding the economic situation
in Europe towards the year 2010, reflect the possibilities rather fairly. I personally find the report an accurate study containing
precise predictions. Out of the five futures