Summary and main conclusions
This paper presents an overview of the various channels of transmission through which the introduction of the euro might affect individual non-EU countries. Probably the main channel of transmission runs via the international trade relations between non-EU countries and the euro area. A trade creation effect results from the positive impact on economic growth in the EU that follows from the completion of EMU. While this may be compensated to a certain extent by a trade diversion effect resulting from the increased competitiveness of the euro area countries, the overall impact on exports of non-EU countries should nevertheless be positive. Furthermore, economic growth in the euro area will increasingly affect other regions in the world given the increasing degree of synchronisation of business cycles within the euro area.
Given the considerable degree of inertia in international trade patterns, it can be expected that both the trade creation and the trade diversion effect of the introduction of the euro will make themselves feel only gradually, over a relatively long period of time. However, it may be expected that companies from euro area countries will express their home currency preference for the euro very rapidly after its introduction. Therefore, the introduction of the euro will present a structural break in the invoicing practices in international trade relations, and trade invoicing in euro will start to increase very rapidly, probably very shortly after the start of the transition period.
The role of the euro will also expand in international financial markets. Fully integrated, broad, and liquid markets in euro will develop soon after its introduction, which, together with the stable macroeconomic environment of EMU, will lead to a substantial growth in European financial markets. Portfolio shifts can be expected to take place into these markets, while also the supply of financial assets in euro will grow. Non-EU countries will have the opportunity to diversify their international borrowings, which may contribute to correcting the possibly existing mismatch between foreign trade revenues and international debt servicing. However, it is to be expected that the role of the euro on international financial markets will expand only gradually. The same is true for the potential use of the euro as a vehicle currency on foreign exchange markets, which will benefit from its increased use as an invoicing currency in international trade and from its growing role in international capital markets.