Question

Identify two ways in which Europe might not fully qualify at present as an optimum currency area. Explain briefly

Answer 1

An optimal currency area is a where a single currency is being used in order to enhance macroeconomic performance and welfare (Beckmann, 2012). Currently, the European Union might not be classified as an optimal currency area because it is undergoing Brexit (Matthijs and Blyth, 2015). The process of facilitating England to exit the union has undermined capital mobility, labor mobility and currency risk sharing systems (Baldwin and Wyplosz, 2015). As a result of this facet, Europe might not fully qualify at present as an optimum currency area.

References

Baldwin, R. and Wyplosz, C. (2015). The economics of European integration. London: McGraw-Hill Education.

Beckmann, M. (2012). Spatial dynamics of european integration. New York: Springer.

Matthijs, M. and Blyth, M. (2015). The future of the euro. 1st ed. Oxford: Oxford University Press.