Transcript I. Relative Power of the Euro

…and the current situation
Oriana Méndez López
Blanca Lera Diez
Nick Frontera
Creation of the new currency
 Treaty of Rome 1957
First approaches to monetary cooperation between ‘The Six’.
 Estabishment of the European Monetary System 1979
Most countries linked their currencies.
 Maastricht treaty 1992
Establishment of the Euro
Strict criteria to be part of the Eurozone were agreed.
 European Council of Copenhagen 1993
 European Council of Madrid 1995
General policy in more detail
 Brusels Council 1998
The countries which were going to form the Eurozone were chosen
Phases of the introduction of the Euro
1.
January 1999
-Creation of the European Central Bank
-Preparation of the main banks and financial institutions
2.
January 1999 -December 2001
- The currency was introduced in non-physical form
- The exchange rates were locked at fixed rates
- Notes and coins for the old currencies continued to be used
3.
January 2002
- Banknotes and coins were put into circulation
- Change-over period began
16 countries have already adopted the Euro
 1999: Austria, Belgium, Cyprus, Finland, France, Germany, Italy, Ireland,
Luxembourg, Netherlands, Portugal, Spain
 2001: Greece
 2007: Slovenia
 2008: Cyprus, Malta
 2009: Slovakia
Evolution of the Euro
I. Relative Power of the Euro
After 2007…
December 2007: 1 EUR = 1,4874 USD
June 2008: 1 EUR = 1,5818 USD
December 2008: 1EUR = 1,4659 USD
June 2008: 1 EUR = 1,6038 USD
December2009: 1 EUR = 1,5120 USD
June 2009: 1 EUR = 1,4063 USD
December 2009: 1 EUR = 1,5120 USD
II. Benefits of the introduction of the
Euro
 Lower transaction costs
 Promotion of price stability and transparency
 Elimination of exchange rate fluctuations,
uncertainties and risks
 Improvement in Inflation Performance
 Inward Investment
III. Joining the Euro Zone
Key Treaties
•Treaty of Maastricht, 1992
•European Council in Copenhagen,1993
•European Council in Madrid, 1995
Three Major Criteria
•Political criteria
•Economic criteria
•Legislative criteria
III. Joining the Euro Zone
 Preparation for candidacy
 Formal application
 Is the country ready for applying?
 Analysis of the laws
 Is there any law that should be negotiated?
 Negotiations and changes to approach the requirements
 Should the country join?
 Signature of the treaty of accession
IV. Current Situation of the Euro
 The Euro is gaining favoritism and purchasing power.
 Crisis
 Modest improvement in the Euro Area
 Should not be forgotten all the money put through for
facing the crisis.
The Future of the Euro and
Monetary Integration
Key Points
 Reasons for a collapse of the EMU
 Future Adoption of the Euro by Members of the
European Union
 Moving Into World Integration
Reasons for a Possible Collapse of
the EMU
• It is in their best interest to have their own economic
policy at the time.
• Limitations on fiscal deficit
• Failing economies must be bailed out by larger
economies (The Ouzo Effect)
Countries Want Their Own
Economic Policy.
 Conditions in individual EMU members may develop
in such different ways that some national political
leaders could be tempted to conclude that their
countries would be better served by adopting a mix of
policies different from that of the other members.
Limitations On Fiscal Deficit
 The Stability and Growth Pact limits the amount of
fiscal deficit that may be assumed by an EMU member.
 Countries faced with harsh economic conditions may
desire to attempt to stimulate their economies very
aggressively through deficit spending beyond the level
which is permitted by the pact.
Failing Economies Must Be Bailed Out
By Larger Economies (The Ouzo Effect)
 The fact that certain countries are struggling more
than others in this economic situation results in a need
for aid from either the European Central Bank or from
the governments of other members in order to support
countries such as Greece who have assumed a large
amount of debt.
“The Ouzo Effect”
 Greece has accumulated so much debt that their
public debt now accounts for 125% of their annual
GDP. This headache after all the spending, similar to
that which results from drinking the Greek drink
Ouzo, is felt by the more powerful nations in the EMU
as now it is their burden to bail out Greece or face a
loss in the power of the euro.
Future Adoption of the Euro by
Members of the European Union
 Some regions such as the United Kingdom have
resisted joining the EMU for various reasons.
 The UK has a set of standards that must be met before
they consider adopting the Euro as their national
currency.
The UK’s Standards
 Are business cycles and economic structures compatible so that we and others
could live comfortably with euro interest rates on a permanent basis?
 If problems emerge is there sufficient flexibility to deal with them?
 Would joining EMU create better conditions for firms making long-term
decisions to invest in Britain?
 What impact would entry into EMU have on the competitive position of the
UK’s financial services industry, particularly the City’s wholesale markets?
 In summary, will joining EMU promote higher growth, stability and a lasting
increase in jobs?
*** It appears that the current condition of the EMU meets these conditions in
a satisfactory manner and it is expected that the UK will join the EMU in the
near future.
Moving Into World Integration
 The success or failure of the euro could not only be a
great indicator of the future of world economic
integration but also could serve as a sort of testing
grounds for what is becoming more and more an
integrated world economy.
Trends In World Economies
 Economies are becoming more and more dependant
upon each other.
 Trade between nations is more and more common.
 More and more trade unions are forming between
countries to reduce trade barriers.
World Monetary Integration… Only
an Idea… For Now
 It is possible that one day economies will be so
integrated that the idea of world monetary union will
not be so farfetched.
 An organization called the United Future World
Currency has already begun to plan for this time
period. They have introduced the idea to many high
profile politicians and economists and have received a
favorable response.
Conclusion
 It is clear that the euro is not perfect and that the EMU
faces many challenges in both dealing with the current
crisis and moving into the future. However, if the euro
does survive and continue to be a powerful currency
and benefit its users, it is possible that one day we
could see a world monetary union.
Thank you !