An optimum currency area (OCA), also known as an optimal currency region (OCR), is a geographical region in which it would maximize

economic efficiency to have the entire region share a single currency. It describes the optimal characteristics for the merger of currencies or the creation of a new currency. The theory is used often to argue whether or not a certain region is ready to become a monetary union, one of the final stages in economic integration. An optimal currency area is often larger than a country. For instance, part of the rationale behind the creation of the euro is that the individual countries of Europe do not each form an optimal currency area, but that Europe as a whole does form an optimal currency area. Advantages: 1. The euro contributes to greater competitiveness to Slovenia and other EU countries. 2. The introduction of the euro caused comparable prices in the euro area and the creation of a more stable environment for the whole economy. 3. The single currency is removing exchange rate risks and costs of changing money. 4. The long term we can expect lower interest rates and price stability, which will have a positive impact on investment and economic growth. 5. The introduction of the euro also helps to develop the capital market between the Member States of the euro area. 6. Firms within the Euro zone are already finding it easier and cheaper to raise money to invest, enabling businesses to improve their competitiveness on the world markets. 7. Increased levels of bureaucracy and more decisions would have to be made by Qualified Majority Voting 8. Elimination of changing money and the risk of price fluctuations. 9. Price transparency increases the intra-European trade and lead to more competition. Also there are much more investment opportunities for consumers that can be used throughout the EU 10. Benefits for companies for small and medium-sized enterprises are calculated by the elimination of transaction costs

Disadvantages of Expanding EU into Eastern Europe 1. Structural change as the economy adjusts to new trade patterns. E.g. many industries will not be able to compete with lower costs in the West 2. With free movement of labor and capital, the most skilled and mobile workers may go from East to West to take advantage of higher benefits and wages. This could weaken the economy 3. Agriculture may need to be reformed because the EU will not want to give large subsidies to inefficient farmers in the East. This could cause problems in rural areas.

4. The Legal and economic framework of the former command economies lag behind many EU countries however this is not an insurmountable problem. Inefficient Policies. A large percentage of EU spending goes on the Common Agricultural Policy. For many years this distorted agricultural markets by placing minimum prices on food. This lead to higher prices for consumers and encouraging over-supply. Reforms to CAP have reduced, but not eliminated this wastage. Migration. Free Movement of Labor has caused problems of overcrowding in UK cities. The UK's population is set to rise to 70 million over next decade, partly due to immigration. This has pushed up house prices and led to congestion on roads. bureaucracy less democracy. Problems of Euro. Membership of the EU doesn't necessarily mean membership of the Euro. But, the EU has placed great emphasis on the Single Currency. However, it has proved to have many problems. Problems of the Euro

Interest rates not suitable for whole Euro zone. A common monetary policy involves a common interest rate for the whole euro zone area. However, the interest rate set by the ECB may be inappropriate for regions which are growing much faster or much slower than the Euro zone average. For example, in 2011, the ECB increased interest rates because of fears of inflation in Germany. However, in 2011, southern Euro zone members were heading for recession due to austerity packages. The higher interest rates set by the ECB were unsuitable for countries such as Portugal, Greece and Italy. The Euro is not an optimal currency area. If a state in the US, such as New York, was in recession, workers in New York could move to New England and get a job. However, in the Euro zone this is much more difficult; it involves moving country and possibly learning a new language. There are more barriers to the movement of labor and capital within a diverse region like Europe. Therefore, an unemployed Greek can't easily relocate to Germany. see: Two Speed Europe Limits Fiscal Policy. With a common monetary policy it is important to have similar levels of national debt; otherwise countries may struggle to attract enough buyers of national debt. This is a growing problem for many Mediterranean countries like Italy, Greece and Spain who have large national debts and rising bond yields. Lack of Incentives. It is argued that being a member of the Euro protects a country from a currency crisis. Therefore, there is less incentive for countries to implement structural reform and fiscal responsibility. For example, in good years Greece was able to benefit from very low bond yields on its debt because people felt Greek debt would be secured by rest of Europe. But, this wasn't the case, and Greece was lulled into a fall sense of security.

No scope for Devaluation. Since the start of the Euro, several countries have experienced rising labor costs. This has made their exports uncompetitive. Usually, their currency would devalue to restore competitiveness. However, in the Euro, you can't devalue and you are stuck with uncompetitive exports. This has led to record current account deficits, a fall in exports and low growth. This has particularly been a problem for countries like Portugal, Italy and Greece.