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A collective currency or a catalyst for division? What the euro means for Europe

A collective currency or a catalyst for division? What the euro means for Europe
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More than 340 million people in 19 member states of the European Union have one thing in common: the euro. However, two decades after its introduction, the single currency remains the subject of controversial debate. Some see it as more of a wedge than an instrument for fostering a spirit of community. The most important questions and answers:

What is the idea of the euro?

"The idea of the euro was and is to promote the European single market and to ensure economic growth and prosperity," says Sabine Lautenschlaeger, member of the European Central Bank's governing body, in May 2016. "However, its name makes it clear that the euro should be more. The euro should become a single currency for a united Europe. It should deepen the cultural and political unity of Europe, reduce borders and strengthen the collective spirit."

What are the advantages of a common currency?

For travelers, the cost of exchanging money for foreign currency is eliminated in many destinations. Entrepreneurs from individual member states no longer have to hedge against currency fluctuations when doing business in the euro area. According to Ulrich Kater, Chief Economist at German bank Dekabank, countries that are weaker economically have also benefited from the solidity of their stronger partners in the eurozone.

Michael Heise, Chief Economist of the insurance company Allianz, emphasizes that the euro has had benefits for all member countries as trade and capital flows have intensified and there have been higher price transparency, more competition, lower transaction costs and an integration of the financial markets.

Are there any disadvantages?

Countries with weaker economies can no longer boost their exports by making them cheaper through the devaluation of their national currencies. EU think tank Centre for European Policy Studies (CEPS) therefore draws a negative conclusion. It believes that only Germany has been able to benefit from the euro - and to a much lesser extent the Netherlands. However, in a recent study the CEPS concludes that in many other euro countries, the single currency has led to a decline of prosperity.

How has the economy developed in the euro countries?

Countries that already had strong economies before the introduction of the euro have continued to develop very well thereafter, says Dekabank economist Kater. These include Germany, the Netherlands and Austria. However, Kater says: "In countries like Spain, Greece or Italy, the old problems of inefficiency and high debt have remained."

Has the euro pushed up prices?

"Fears that inflation would rise as a result of the introduction of the euro have not materialized," notes Gertrud Traud, Chief Economist of the German Helaba bank. In the 20 years of the currency's existence, the eurozone's average annual inflation rate was 1.7 per cent.

"The fact is that the euro is stable - even more stable than the Deutschmark," says Marcel Fratzscher, President of the German Institute for Economic Research (DIW). It is one of the reasons that make the euro the second most important reserve currency worldwide after the US dollar.

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