nks will attract business, and so will the bond and equity markets. This in turn will create jobs.” Therefore if the euro becomes an international currency like the dollar, there will likely be the creation of new opportunities of financial institutions in Euroland. Finally, the euro has also encouraged economic growth within the European Economic Community. Lower transaction costs and exchange rate risk, coupled with price transparency and a single means of payment, have increased the effective size of the product markets across euroland. As a result, some multinationals can now achieve economies of scale, which is “the ability to produce products at a lower average cost than competitors due high volume”. Economic historians know that economies of scale have been a key determinant of the United States industrial success for centuries. Euroland now hopes to benefit form the lower average costs, higher productivity, and enhanced competitiveness promised by a large internal market. Although the euro has proven to be successful since it was integrated in January 1999, there are two major ongoing risks associated with monetary union. These risks are not one-time costs that will soon disappear. Instead, they will threaten the sustainability of the euro for decades to come. These shocks involve susceptibility to economic shocks and political discord. Economic shocks are “unexpected changes in the macroeconomic environment of a country or region that disrupts the careful balance of production, consumption, investment, government spending, and trade.” The most threatening type of economic shock for the single currency area is known as an asymmetric shock, so called because such shocks affect countries unequally. They can be caused by sharp declines or increases in demand for the primary goods and services of a specific country. “Before the arrival of the euro, Euroland countries could handle asy...
