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The Challenge of a Single Currency for European Union

In March 2002, use of the euro took effect in 12 European countries, including Austria, Italy, France, Spain, Portugal, Germany, Belgium, Greece, Finland, Ireland, Luxembourg and the Netherlands (De Blij & Muller, 2003). Great Britain, Sweden and Denmark have not adopted the euro and first wave and countries currently negotiating to join the EU have not begun to participate in this currency regime as well (De Blij & Muller, 2003). Consequently, one barrier to the development of a euro based economy impacting upon all of the EU is that the currency itself has not been adopted by selected members. This clearly dilutes the impact of the currency and its potential for use.

As early as 1994, long before the euro was officially launched, Charles Wyplosz (1994) reported that there were any number of hurdles that had to be addressed before adoption could occur. Currency speculation and competitive devaluations were problems impeding adoption then û and there are some concerns that this problem impacted upon the late launch of the euro. What was needed to launch the euro were many different exchange-rate realignments that would not be possible once a member of the EU elected to adopt the euro. Many investors, fearing that the new regime when adopted would inhibit investment growth, simply chose o relocate their funds and capital elsewhere in anticipation of the launch. Some investors continue to do this today.

In 1998, concerns regarding the European monetary Union (EMU) were being expressed by many in and out of government. Wyplosz (1998, p. 128) reported that:

To a large extent, EMU was born of necessity rather than of some grand vision. While the single currency has been an objective since the creation of the Common Market in 1957, it was always seen as a distant goal, the Holy Grail of a United States of Europe. What made EMU inevitable, however, was the removal of capital controls, completed in 1990, that deprived national go...

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