2002: The 11 European Member States of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain were all in the first wave of the Eurozone. On 1 January 1999, exchange rates between their currencies were fixed and the Euro became legal currency. From 1 January 2002, Euro notes, and coins replaced those of domestic currencies and all transactions have been in Euros. The agreement of European Monetary Union (EMU) was ratified by the Treaty of Maastricht and the ERM provided a practical rehearsal. The European Central Bank in Frankfurt was established in 1998 to regulate the new currency. Jacque Santer, the former President of the European Commission, cited the following benefits of the Euro in a speech in Chicago in May 1998:

1.The future Eurozone is roughly comparable in size and economic weight to the United States. It will have nearly 300 million inhabitants, and account for almost 20 per cent of the world GDP and of world trade, comparable to the United States.

2.The Eurozone will have a high degree of stability. The European Central Bank, whose independence has constitutional rank, will guarantee price stability, defined in operation terms as inflation between 0 and 2 per cent.

3.It will continue to spur economic growth and will therefore indirectly stimulate job creation.

4.The Euro will also have a profound microeconomic effect on the functioning of Europe's internal market. By removing transaction costs and completely eliminating currency fluctuations and currency risk, trade, investment and travel in the Eurozone will be greatly facilitated, and prices driven downwards through greater competition.

5.In the financial sector, the potentially positive impact of the Euro is especially large.

6.The big unknown is the Euro's international impact. Will it become a truly international currency, performing the role of the unit of account, means of payment and reserve currency?

Willem Buiter, Professor of International Macroeconomics at the University of Cambridge, gave a more measured support for the Euro at a speech in London in December 1998:

'EMU will succeed in generating greater Euroland-wide prosperity than would have been likely under any alternative monetary arrangement. As regards macroeconomic stability it will make a modest positive contribution, provided the national countries rede- sign their automatic fiscal stabilizers to generate more strongly anti-cyclical deficits. Lower transaction costs and greater price transparency will help complete the single market, limit price dis- crimination and other restrictive practices. These are worthy and worthwhile gains, but it is unlikely to add up to a hill of beans.'

Those opposed to EMU draw attention to the following questions:

Would joining EMU create better conditions for firms making long- term decisions to invest in an EMU country?

How would being part of the single currency affect trade?

Are business cycles compatible so that those economies in the EMU zone can prosper under a single Euro interest rate?

If economic problems or currency problems do emerge, is there sufficient flexibility to deal with them?

Will joining the EMU help to promote higher growth, stability and a lasting increase in jobs?

2011: The Eurozone is facing a major crisis. The governments of Portugal, Ireland, Greece and Spain have all had to seek emergency funding arrangements from the European Financial Stability Facility to help meet their mounting problems of financing their national debt. The European Financial Stability Facility was especially created to support Eurozone members facing a financial crisis. There is even discussion about the disintegration of the Euro. Many Germans would dearly like to see a return to the mighty Deutschmark and commentators are pointing to the deep divisions opening up in the Eurozone between the strong economies of Germany, France and the Netherlands versus the weak ones of Portugal, Italy, Ireland, Greece and Spain. Perhaps even the Eurozone might collapse into two halves.

Source: The European Commission (http://europa.eu.int/euro/html/), The Bank of England (http://www.bankofengland.co.uk), Newspapers: The Guardian and The Daily Telegraph, The BBC.

Recap Questions

1.Explain the meaning and importance of the following terms to a named leisure or tourism organization: macroeconomic stability, single Euro interest rate, anti-cyclical deficits, restrictive practices.

2.Evaluate the impact of the Euro on consumers of leisure and tourism goods and services.

3.Evaluate the impact of the Euro on producers of leisure and tourism goods and services.

4.Evaluate the decision of the UK and Denmark to opt out of the initial Eurozone.

5.Why was the Eurozone in crisis in 2011?

6.Examine the impacts of a collapse of the Eurozone.