Would the value of the Euro increase if all 27 member states adopt it??

Leinsterr

interested to know whether this will increase the value of the euro and will this effect ireland in a significant way (good or bad)????????

dvpower

You should at least make some effort yourself.
This isn't a homework club.

[Jackass]

Leinsterr wrote: »

interested to know whether this will increase the value of the euro and will this effect ireland in a significant way (good or bad)????????

Well, look at the issues.

Two ways you could argue the point really.

On the one hand, if the 27 (soon to be 28) countries took on the Euro, there would need to be massively increased circulation, thereby devaluing the currency (by printing money essentially).

The extent of how much it devalues can rely on external factors, such as the adoption of the currency universally (particularly by Britain) would be a great show of solidarity in Europe, and may make markets rally.

In terms of how it might effect Ireland, well if the currency is devalued, it can make exports more attractive to states outside of the EU (particularly USA), however, it may make exports less attractive to somewhere like the UK as they will no longer have a favourable exchange rate with the euro.

Also, a devalued currency will mean your savings will lose value, but debt will become less "deep", your wage will be devalued, and goods will more than likely rise in price to compensate for the exchange rate difference, thereby causing inflation.

srsly78

[Jackass] wrote: »

Well, look at the issues.

On the one hand, if the 27 (soon to be 28) countries took on the Euro, there would need to be massively increased circulation, thereby devaluing the currency (by printing money essentially).

This is not how it works. The newly printed money would be chasing goods from the new countries, so in theory no change.

This has actually been happening, new countries have joined the eurozone - more euros were printed - no devaluation.

Medu

There is no simple answer.

It would depend on the strength of the economies joining vs the strength of the current ones at the time of accession.
There are less tangible factors as well- if other large countries like the UK wanted to join then that would send signals that the Euro is healthier than people think which would probably strength it.

However increasing value isn't always a good thing. For example Japanese companies have really been struggling to compete due to a strong yen leading to multi-billion dollar losses for many of their household names.

antoobrien

srsly78 wrote: »

This is not how it works. The newly printed money would be chasing goods from the new countries, so in theory no change.

More exactly the newly printed money would be replacing existing money supplies in different currencies.

Lets say country X wants to join the euro and has a total money supply of X$10tn, with an exchange rate of . €1=X$1.25. Before conversion the euro area supply is €500tn.

Money supply before conversion: €500tn euro + X$10tn (equivalent to €8tn)
After: €508tn + X$0

So, while there are extra € notes, the X$ is no longer in circulation os there is no net increase in the money supply of the region, therefore no reason for inflation purely because of the change in currency.

The effect of a currency changeover will bring out the "mattress money" - which makes it appear that there is more money in circulation, when in fact it was still there, just not being used in the economy.

There is also the effect of changing demand levels. Entering the eurozone makes it easier for trade, so in theory demand could go up. If the supply does not increase to cope with any extra demand, prices will rise.

[Jackass]

srsly78 wrote: »

This is not how it works. The newly printed money would be chasing goods from the new countries, so in theory no change.

This has actually been happening, new countries have joined the eurozone - more euros were printed - no devaluation.

I see your point, but I'd still imagine that a universally adopted Euro would be on such a large scale that it would devalue the currency.

Not only would more of the Euro be circulated (as mentioned mattress money etc.) but indeed markets, imo, would move capital away from the Euro, i.e. buy dollar to protect against the anticipation of a potential devaluation of Euro, as markets always tend to over compensate one way or another to a potential shock - that capital movement alone could devalue the Euro, and not only that, but increase the Dollar, thus giving the Euro even more relative weakness in terms of imports. But again, more competitive exports, if only in the short term, when capital inflows can occur at a weaker exchange rate, essentially increasing your cash by transacting away from euro and then back to euro.

srsly78

So you are saying the markets would devalue the euro to protect against a potential devaluation, ok sure that's a possibility. They could also do the opposite. Note that Latvia and Romania are set to adopt the euro in 2014 and 2015.

What is this news I see: http://www.bloomberg.com/news/2013-02-01/pound-falls-as-much-as-1-8-versus-euro-biggest-drop-in.html

SupaNova2

[Jackass] wrote: »

Not only would more of the Euro be circulated (as mentioned mattress money etc.) but indeed markets, imo, would move capital away from the Euro, i.e. buy dollar to protect against the anticipation of a potential devaluation of Euro, as markets always tend to over compensate one way or another to a potential shock

There is no reason a market participant would expect the euro to devalue if the outgoing currencies received euros at going market exchange rates.

SupaNova2

srsly78 wrote: »

So you are saying the markets would devalue the euro to protect against a potential devaluation, ok sure that's a possibility. They could also do the opposite. Note that Latvia and Romania are set to adopt the euro in 2014 and 2015.

What is this news I see: http://www.bloomberg.com/news/2013-02-01/pound-falls-as-much-as-1-8-versus-euro-biggest-drop-in.html

And the entering central banks have much less need for large dollar reserve holdings.

Geuze

The number of members of a currency union shouldn't affect the value of the currency.

The USA has 50 states, no mention of a stronger or weaker dollar due to that.

Scofflaw

Geuze wrote: »

The number of members of a currency union shouldn't affect the value of the currency.

The USA has 50 states, no mention of a stronger or weaker dollar due to that.

To be fair, though, that's because there's no question of more or less states using the dollar. It's not so much the simple question of the number of states, but the balance of euro-weakening and euro-strengthening states that join. If another Germany joined, the euro would likely appreciate - if we added another ten Greeces, it would likely depreciate.

Similarly, if California left the dollar, or New York, I daresay the dollar would weaken immediately.

cordially,
Scofflaw

Geuze

Fair enough.

Who is next to join?

I see LV and RO mentioned above - that's the first I've heard about it.

[Jackass]

Croatia join this year, candidate countries are Turkey, Romania and a few others I don't quite recall.

srsly78 wrote: »

So you are saying the markets would devalue the euro to protect against a potential devaluation, ok sure that's a possibility. They could also do the opposite. Note that Latvia and Romania are set to adopt the euro in 2014 and 2015.

What is this news I see: http://www.bloomberg.com/news/2013-02-01/pound-falls-as-much-as-1-8-versus-euro-biggest-drop-in.html

Well, that's purely currentism, and it's in response to poor UK growth and acknowledges that capital is moving for a "safe" haven from the Euro. The fact is, there are too many variables to call it one way or another, but it is false to say that new joing EU states, especially on such a scale as doubling the participating states would not weaken the Euro, as a matter of fact, as the truth is that it well could do - it can't be called either way - I'm of the opinion that in the current climate, given the euro zone debt already in existance and the minimal growth in Europe, that expanding the eurozone area could well weaken it due to capital outflows and increased money supply.

Geuze

Note that Romania are a current EU member, one of the 27.

Also note that all of the 10 + 2 who joined in 2004 and 2007 are expected to eventually join EMU.

DK and the UK have legal opt-outs from the single currency.

SWE don't, but stayed out.