Economic impact analysis of the Euro currency on member countries of the European Union

This paper analyses the economic impact of the euro (€) on twelve member countries of the European Union (EU) who adopted the euro as their common currency on January 1, 2002.  Prior to the period, the Maastricht Treaty (MT) of 1992 and the Stability and Growth Pact (SGP) of 1997 laid down some convergence criteria (price stability, convergence of interest rates, exchange rate stability, and budgetary balance) that must be met by member countries. Against this background, we empirically examine trends in key macroeconomic variables – per capita real GDP growth rates, tax revenues, government expenditures, unemployment rate, inflation rate, and trade openness – that capture the essence of the convergence criteria. In addition, we test the null hypotheses of no differences between the 10-year mean values of these macroeconomic variables between 1992- 2001 (before the adoption of the €) and 2002-2012 (after the adoption of the €) against the research hypotheses that differences exist between means. Specifically, we test the null (H₀) and research hypotheses (H_R) of the forms: H₀: μ_ij|_1992-2001= μ_ij|_2002-2012 versus H_R: μ_ij|_1992-2001≠ μ_ij|_2002-2012 where μ is a vector of the means of the i^th variable in country j (for j = 1…..12), which we believe will better capture the relevant convergence criteria variables set out in the MT of 1992 and/or the SGP of 1997.  If we fail to reject the null hypotheses of no differences between the means of these variables for both periods (1992-2001 and 2002-2012), then we conclude the adoption of the common currency had no statistical significant impact on those variables.  If we reject H₀ in favor of H_R that true differences exist in the means of these variables between both periods, then we can conclude otherwise.