Effects of adopting the Euro : a case study of Malta

Abstract

During the turn of the 1990’s the countries that made up the European Economic Community entered talks on how to better integrate themselves fiscally and economically. During these talks a proposal for a single currency to be used by all the countries was made. By the time of the Maastricht treaty ratification in 1992 it became known as the Eurozone. While the aim of the Eurozone was the economic integration of the joining countries, many believe that the aim was not reached to the required extent. Various theories were discussed on the degree to which the Eurozone succeeded in integrating the Eurozone members economically, whilst the Global Financial Crisis (GFC) played a major role on the theories brought forward regarding the success achieved at integrating the Eurozone members. This dissertation will deal with the economic influence that the Euro and the Eurozone have had on Malta, which is the smallest country of the EU. To reach the purpose of this dissertation, various time periods of Malta’s recent history will be explored. This will range from the time of accession into the EU, to the adoption of the Euro at the beginning of 2008, the GFC that occurred later in the same year, and how Malta reacted to the challenges faced. In the case study, three research questions were answered in order to reach the results needed. These are 1) The trade effects of Malta’s adoption of the Euro? 2) What were the expected effects of the Euro in Malta? and 3) What is the final assessment of the Euro’s effects in Malta? All three questions were tackled in tandem as the research completed managed to answer both questions. The literature review was done using a qualitative research method aimed at researching primary and secondary documents related to theories regarding monetary unions and how they work. In the analysis these theories were then likened with Malta’s statistical data to give a better overall picture of the Euro’s effects on the country. This was done in order to understand the extent of the effect left by the introduction of the Euro in comparison to other external factors such as the economy itself, government policy and asymmetrical shocks which happened throughout the years. Post GFC bearings on the economy of Malta was also analysed in detail and compared to the theories, whilst to conclude Malta’s current economic situation was also benchmarked with the theories to provide a comprehensive view of the role played by the Euro during different economic cycles. At the end, it was established that the effects of euro adoption caused Malta to become more connected not just with the rest of the Eurozone but also with the world economy, giving it a better way than before on trading more competitively. Despite the fact that Malta’s Euro adoption greatly contributed to the positive change in the way that Malta has transformed its economy to better compete with the rest of the Eurozone, Malta did not match the level of economic integration with other Eurozone members shown by the hypothesis of the theories.