The eurozone is an economic and monetary union. Member countries of this union share a single currency, the euro. Romania is hoping to become a member of the eurozone by 2026. Evaluate the costs to a country of becoming a member of an economic and monetary union. Refer to a country of your choice in your answer.

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.

Knowledge, Application and Analysis ( 12 marks) - indicative content
- Understanding of an economic and monetary union

Costs include:
- High transition costs: Romania will have to replace their currency when adopting the euro; changes to bank notes/coins will be required
- Loss of independent monetary policy: Romania's central bank no longer has control over influencing interest rates/quantitative easing; will now be done centrally by ECB - one policy fits all
- Loss of ability to depreciate currency in recession: Romania's central bank will not be able to influence the external value of the currency, leaving the country more vulnerable to external shocks
- The union is likely to have a growth and stability pact that is likely to limit expansionary fiscal policy in a recession: restricts amount of government borrowing, therefore making it harder to come out of a recession
- Membership of economic and monetary union may expose the government to financial costs of future bailouts of under-performing countries
- Difficult to exit the economic and monetary union once a country has joined
- Costs of a trading bloc/single market e.g. trade diversion, increased costs of immigration
N.B. Award maximum of Level 3 ( 9 marks) if a candidate does not refer to a country in their answer
N.B. Award maximum of Level 3 ( 9 marks) if a candidate does not refer to both economic and monetary union in their answer
Evaluation (8 marks) - indicative content
- Eliminates/reduces transaction costs or currency conversion costs in an increasingly integrated regional market: makes it easier and cheaper for firms and consumers to engage in trade
- Greater price transparency: easier to check different prices in the same currency - hence increasing inner-regional competition/contestability and market efficiency
- Greater certainty for firms investing in capacity to export to other eurozone countries: will provide more stability and increase trade
- Encourages inward foreign direct investment as more foreign firms would be keen to invest in eurozone area because of easier trading conditions
- Offers more incentives: more pressure to increase productivity and keep inflation low, otherwise become uncompetitive
- The euro is likely to be more stable than other currencies; this will reduce currency risks making it easier for countries to borrow
- Benefits of a trading bloc/single market e.g. trade creation, immigration helping to fill skill shortages