Introduction to Euro

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INTRODUCTION TO EURO

Transcript of Introduction to Euro

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INTRODUCTION TO

EURO

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HISTORY OF EURO

1952: European Coal & Steel Community (ECSC)

1957: European Economic Community (EEC)

1958: European Atomic Energy Community (EURATOM)

1969: Initiative by the European Commission

1970: Pierre Werner¶s Report

1971: Collapse of the Bretton Woods System

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HISTORY OF EURO«

1979: European Monetary System (EMS),

Exchange Rate Mechanism (ERM),

European Currency Unit (ECU), &

European Monetary Cooperation Fund (EMCF)

1986: The Single European Act

1988: European Council Summit in Hannover 

1989: Jacques Delors¶ Report- Three step plan to set up

the EMU

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STAGE 1: (1990-1993)

1990: Exchange Controls abolished

1992: Treaty on European Union signed in Maastricht, which

states-

1. The Three Pillars of European Union:

o The European Communities

o Common Foreign and Security Police (CFSP)

o Police and Judicial Cooperation in Criminal Matters

2. Role of the European Central Bank (ECB)

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STAGE 2: (1994-1998)

1994: Creation of the European Monetary Institute

1995: Madrid Summit

1997: The Stability and Growth Pact and

A New Exchange Rate Mechanism (ERM II)

1998: May : The 11 Participating Countries

June : The Successor of the European Monetary

Institute- The European Central Bank (ECB)

Dec : Fixing the Exchange Rates

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CURRENCY CODE RATE FIXED ON

Austrian Schilling ATS 13.7603 31st December 1998

Belgian Franc BEF 40.3399 31st December 1998

Dutch Guilder NLG 2.20371 31st December 1998

Finnish Markka FIM 5.94573 31st December 1998

French Franc FRF 6.55957 31st December 1998

German Mark DEM 1.95583 31st December 1998

Irish Pound IEP 0.787564 31st December 1998

Italian Lira ITL 1936.27 31st December 1998

Luxembourgian Franc LUF 40.3399 31st

December 1998

Monegasque Franc MCF 6.55957 31st December 1998

Portuguese Escudo PTE 200.482 31st December 1998

Sammarinese Lira SML 1936.27 31st December 1998

Spanish Peseta ESP 166.386 31st December 1998

Vatican Lira VAL 1936.27 31st December 1998

Greek Drachma GRD 340.75 19th June 2000

Slovenian Tolar SIT 239.64 11th July 2006

Cypriat Pound CYP 0.585274 10th July 2007

Maltese Lira MTL 0.4293 10th July 2007

Slovak Koruna SKK 30.126 8th July 2008

Estonian Kroon EEK 15.6466 13th July 2010

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STAGE 3: (January 1999 onwards)

1999: Introduction of Euro in Non-Physical Form

2001: Distribution, Frontloading of Euro Banknotes and

Coins

2002: Euro Banknotes and Coins in Circulation

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THE EURO CONVERGENCE CRITERIA

Twelve-month Inflation : below 3.2%

Fiscal Deficit : below 3.0%

Debt Ratio : below 60%

Interest Rate : Close to the EU average

A Stable Exchange Rate

Sound Public Finances

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THE EURO SYMBOL

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THE EURO

The Currency Name and Symbol

Who uses the Euro?

Who doesn't use the Euro?

Euro Banknotes and Coins- The Designs & their Significance

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CHARACTERISTICS OF

THE EURO AREA

One of the Largest Economies in the World

Limited Dependence on Foreign Trade

Interbank Money Market: Fully Integrated

Bond market: Integrated, Deep and Liquid

Equity Market: Increasingly viewed as a Single Market.

Banks: Many Domestic and Cross-border Mergers and

Acquisitions

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EURO AS A RESERVE CURRENCY

World¶s Second International Reserve Currency

The German mark 

Underweight in Advanced economies

Overweight in Emerging economies

Possibility of becoming World¶s First International Reserve

currency

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THE EFFECTS OF

THE INTRODUCTION OF EURO

Optimum Currency Area

Transaction Costs & Risks

Price Parity

Macroeconomic Stability

Trade

Investment

Inflation

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THE EFFECTS OF

THE INTRODUCTION OF EURO

Exchange Rate Risk 

Financial Integration

Interest Rates

Price Convergence

Tourism

Flexible Exchange Rates

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THE FUTURE OF EURO

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EURO¶S CURRENT POSITION

Euro Users: 330 million Europeans & 175 million Others

Euro as a Reserve Currency

ECB¶s plan to backstop European Debt

Structural Flaws in the Euro Framework Exposed

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EUROZONE IGNORING ITS OWN RULES

European Countries bending the Rules

Lending and Borrowing between European Nations

Piling up of Debt

Virtually Nil Labour Mobility

Relatively Small Fiscal Transfers

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DEBT & DEFICIT FIGURES OF

THE WEAKER EURO COUNTRIES

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FLAWS IN THE EURO FRAMEWORK 

Ineffectiveness of a ³One-size-fits-all´ Monetary Policy

Unique Challenges during Tough Times

Individual Fiscal Policy

Disregard of the EU¶s Stability and Growth Pact

Absence of a Stronger Political Union

Emergence of Nationalism

Helpless Weaker Countries

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IS EURO UNDER 

THE THREAT OF EXTINCTION?

Credibility of the ECB towards fighting Inflation

Too much Vested in the System to Abandon Euro

ECB¶s Bailout Package

Euro¶s Revaluation

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THANK YOU!!!


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