Single Currency and CAP: Disadvantages and Impact
Disadvantages of a Single Currency
Inability to Set National Interest Rates
By joining a single currency, a country may lose control over one of its main economic instruments: the ability to react to inflation by raising interest rates. Interest rates must be set centrally according to what the entire single currency area requires. If the trade cycles of different countries do not converge, some nations will suffer, as central policies may amplify any existing problems. For example, since the Euro, Ireland has boomed and struggled with inflationary pressures, while Germany has been in a serious downturn. It’s challenging to set a unified monetary policy for these two disparate economies.
No Devaluations
Member countries will have reduced powers to control their economies. Regional policies will have to compensate.
Central Bank Control
Who will control the central bank? This is a key question for the governance of a single currency.
Taxes
If taxes are too high, a nation may experience a “brain drain.” Therefore, countries may be unwilling to tax, which can lead to a decline in the provision of public services.
Currency Level on Entry
Arguments will take place on the level of a country’s currency upon entry to the single currency, as this has implications for its exports and imports.
The Common Agricultural Policy (CAP): Costs, Benefits, and Reform Challenges
The Common Agricultural Policy (CAP) encourages farmers to focus not only on the quality of products demanded by the agricultural market but also on developments in agricultural production techniques, such as renewable energy resources. Farmers are now required to harmonize their traditional skills with modern technologies to provide valuable products at affordable prices. Farmers should also be concerned with the safety and welfare of the natural environment, as well as the cleanliness of crops. The CAP has played many roles in society by looking after the welfare of the rural community, preserving the natural environment, and assuring farmers about the price of their products with a minimum price ceiling. Today, the CAP continues to support EU agricultural markets by responding to the expectations of both farmers and citizens and will keep reforming to promote the agricultural market and the development of society as a whole.
Criticisms of the CAP
Many critics argue about the cost of the CAP. The Organization for Economic Co-operation and Development (OECD) estimates that 39 billion pounds are allocated to the CAP. Of this, 34 billion pounds go directly to farmers as aid, and the rest is spent on price support and public purchasing of products. The CAP’s budget accounts for 45.4% of the EU’s budget. The main problem is that the CAP costs too much and benefits relatively few people. Compared to the number of beneficiaries, the cost of supporting farmers is disproportionately high. Experts criticize that the subsidies given to farmers still distort world markets and negatively affect farmers in developing countries because the EU guarantees crop prices in Europe. However, supporters of the CAP argue that supporting farmers is the only way to ensure the survival of rural society, where more than half of EU citizens live.
Difficulties in Reforming the CAP
- The susceptibility of national governments to pressure from the domestic agricultural community.
- The institutional bias in the EU towards agricultural interests.
- The asymmetry of interests regarding the CAP between consumers and farmers.