Transcript Europe and the Euro

The European Union
and
the EURO
Alexander Consulting Enterprise
4/7/2016
Successful Economic Union Requirements
-
Economic Compatibility
-
Political Compatibility
-
Geographic Proximity
-
Cultural Compatibility
Weakness in some must be balanced by strengths
in others
Alexander Consulting Enterprise
4/7/2016
European Union
1. What does it mean:
- Free Movement of People
- Free Movement of Goods
- Mutual Recognition of National Standards
but also
- Different Cultures
- Different Languages
- National Governments
- National Laws
Alexander Consulting Enterprise
4/7/2016
2. Objectives
- Economic
- Social
- Political
3. Who Participates?
Alexander Consulting Enterprise
4/7/2016
EU Member Countries
-Old Members
Austria €
Belgium €
Denmark
Finland €
France €
Germany €
Greece €
Ireland €
Italy €
Luxembourg €
Netherlands €
Portugal €
Spain €
Sweden
UK
-New Members
Cyprus €
Czech Republic
Estonia €
Hungary
Latvia
Lithuania
Malta €
Poland
Slovak Republic €
Slovenia €
Rumania
Bulgaria
Croatia
-In Negotiations
Turkey
€ Countries that adopted the EURO
Alexander Consulting Enterprise
4/7/2016
EC Institutions
European Commission
Council of Ministries
European Parliament
European Court of Justice
Alexander Consulting Enterprise
4/7/2016
EMU
1.What is EMU?
Acronym for Economic and Monetary Union. EMU is a three
stage process:
- 1 July 1990: Free movement of capital and closer coordination
of economic policies.
- 1 January 1994: Definition of convergence criteria.
- 1 January 1999: Fixation of accession rates, Introduction of
single currency (the Euro), establishment of ECB
- 1 January 2002: Distribution of Euro coins and bills
2. Who is Participating?
EU member states that fulfilled the convergence criteria:
Austria, Belgium, Finland, France, Germany, Greece. Ireland,
Italy, Luxembourg, Netherlands, Portugal and Spain.
Alexander Consulting Enterprise
4/7/2016
3. How Does it Work?
All national currencies of member states convert into the EURO at
an irrevocably fixed rate. The EURO will float freely against
other main currencies (yen, $). National banknotes will cease to
be legal on 1 July 2002.
4. What is the role of the ECB?
The Governing Council of the European Central Bank (ECB) consists
of six executive board members responsible for current business and
the 11 ministers of the National Central banks. The ECB is
responsible for the money supply in Euroland.
5. How big is Euroland?
290 million people, $6,802 billion GDP versus 267 million people,
$7,100 billion GDP in U.S., and 125 million people, $ 4,964 billion
GDP in Japan
Alexander Consulting Enterprise
4/7/2016
6. Does the EMU lead to a loss of sovereignty of its
member states?
A nation’s currency symbolizes national autonomy. Monetary policy
is a powerful economic instrument, that has an impact on inflation,
interest rates, governmental debt, short term unemployment, and
economic cycle
7. What happens if the economic cycles in different EMU
member states are out of synch?
The exchange rate weapon is ruled out. There is no redistribution
effect of federal taxes (For example: If one part of the U.S. moves
into recession, its tax payments (linked to income and sales) will fall
and federal benefit payments will rise). Adjustments in the EMU
will have to take place through:
- Relocation of workers
- Relocation of businesses
- Change of wages
- Transfer payments between EMU member states
Alexander Consulting Enterprise
4/7/2016
8. What are potential benefits of the EMU?
•Lower cost of managing cash for companies operating across national
borders within Euroland
•Elimination of currency risk in Euroland
•Lower cost of hedging currency risk between EURO and non-EURO
currencies
•Bigger markets. Customers will more readily purchase across national
boundaries, unimpeded by the complexities of different currencies
Alexander Consulting Enterprise
4/7/2016
9. What are potential risks of the EMU?
• Different economic cycles and different productivity rates of EMU
member state will lead to tensions and political pressure on the ECB
• Socially unacceptable high unemployment rate in certain member states
• Politically unacceptable high transfer payments
• Inflation
• International trust in the EURO as a stable currency can not be
• established
Alexander Consulting Enterprise
4/7/2016
10 Who is potentially benefiting the most from the EMU?
- Efficient customer oriented companies
- Manufacturing sector with long lived assets that have been subject to
exchange rate uncertainty
Alexander Consulting Enterprise
4/7/2016