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European Monetary Union and the Harm

A common legal principle provides that where the underlying circumstances of a contract have so changed in a way neither party could foresee, it may excuse performance under that contract. The EU has foreseen this problem and has issues a regulation which provides "the introduction of the euro shall not have the effect of altering any term of a legal instrument or discharging or excusing performance under any legal instrument, nor give a party the right unilaterally to alter or terminate such an instrument." (Council Regulation No. 1103/97) This is fine if the agreement is governed by EU law but not so if it is governed by the law of another country. Thus, a number of states within the U.S. have passed similar provisions including New York, California, Illinois, Michigan and Pennsylvania.

Goods sold in the EU vary in price from country to country. For instance, the price of a bottle of cola varies by 110% from highest to lowest and an automobile by 20%. Although it may not be worth the time and effort to travel to buy cola, a 20% difference in the price of an automobile is a significant sum. Also, there are arbitrageurs who are willing to buy in low price markets and sell in high price markets. These price variations will became much more readily apparent when expressed in a single currency. It will become much more difficult to price goods differently in different parts of Zone euro.

The euro will eliminate the costs of currency exchange within Zone euro as well as currency exchange risks within the zone. It does not eliminate currency exchange risk outside of Zone euro. The euro has declined in value against the dollar since its introduction this year. Ultimately, however, it should tend towards greater stability than individual national currencies. Because of increased transparency in credit costs, the conversion to the euro should increase competition in the the financial services sector making it cheaper to borrow money.

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European Monetary Union and the Harm. (2000, January 01). In LotsofEssays.com. Retrieved 11:37, October 31, 2014, from http://www.collegetermpapers.com/viewpaper/1303764553.html
 
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