Transcript The Euro: Past and Future

Henry Kirse & Danielle Briggs
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
WWII destroyed political and economic
systems in Europe
1946 Bretton Woods Agreement
 Created the International Monetary Fund
 Replaced gold with US dollar
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1957 Treaty of Rome
 Created European Economic Community
▪ Fluctuating Exchange Rates
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“Nixon Shocks”
 1971
 President Nixon moved the US dollar away from
the gold standard
 This ended dollar convertibility and the fixed gold
exchange rate of $35/ounce
 Motivated the European Economic Community to
create a monetary system not dependant on the
US dollar.
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European Currency Unit
 Composite currency used for transactions
 4.5% Barrier to exchange rate

European Monetary System
 Allowed only minor fluctuations in exchange rates
between European Countries
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Treaty of European Unity, 1992
 Maastricht, Netherlands
 Dictated that a monetary union would be
implemented by 1999
 Called for a common monetary and economic
policy among member nations
 Created the European Central Bank
▪ Located in Frankfurt, Germany
▪ Administers Monetary Policy
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1. Inflation rate: No more than 1.5 percentage points higher than
the three lowest inflation member states of the EU.
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2. Government finance:
 Annual government deficit: The ratio of the annual government deficit
to GDP must not exceed 3%
 Government debt: The ratio of gross government debt to gross
domestic profit not exceed 60%.
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3. Exchange rate: Applicant countries should have joined the
exchange rate mechanism under the EMS for 2 consecutive years
and should not have devaluated its currency during the period.
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4. Long-term interest rates: The nominal long-term interest rate
must not be more than two percentage points higher than in the
three lowest inflation member states.
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January 1, 1999
 11 countries adopted the common currency
 Locked in national currency rates against euro

January 1, 2002
 Physical Currency Issued
 12 countries adopted single currency

11 beginning countries has expanded to 16
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As of November 2008
 €751 billion in circulation
 Roughly $953 billion
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EuroZone is the 2nd largest economy in the
world
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At implementation exchange rate was $1.17
to € 1.
Lowest rate occurred October 27, 2000
 $.8229 : € 1

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Since 2002, Euro has not dipped below $1
Current US dollar to Euro exchange rate
March 10, 2009:
 $1.27 : €1
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Enacted by Treaty of European Unity, 1992
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Economic Requirements to participate
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Currency implemented January 1, 1999
 Physically distributed January 1, 2002
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Relatively stable exchange rates
 Since 2000, above $1: €1