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The Euro: Past and Future

Henry Kirse & Danielle Briggs. The Euro: Past and Future. The History: The Beginnings. WWII destroyed political and economic systems in Europe 1946 Bretton Woods Agreement Created the International Monetary Fund Replaced gold with US dollar 1957 Treaty of Rome

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The Euro: Past and Future

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  1. Henry Kirse & Danielle Briggs The Euro:Past and Future

  2. The History: The Beginnings • WWII destroyed political and economic systems in Europe • 1946 Bretton Woods Agreement • Created the International Monetary Fund • Replaced gold with US dollar • 1957 Treaty of Rome • Created European Economic Community • Fluctuating Exchange Rates

  3. The History: The Final Motivator • “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.

  4. The History: First Attempt • 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

  5. The History, continued • 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

  6. Economic Requirements • 1. Inflation rate: No more than 1.5 percentage points higher than the three lowest inflation member states of the EU. • 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%. • 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. • 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.

  7. Implementation • 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

  8. The EuroZone

  9. The EuroZone • 11 beginning countries has expanded to 16 • As of November 2008 • €751 billion in circulation • Roughly $953 billion • EuroZone is the 2nd largest economy in the world

  10. Exchange Rates

  11. Exchange Rates, Continued • At implementation exchange rate was $1.17 to € 1. • Lowest rate occurred October 27, 2000 • $.8229 : € 1 • Since 2002, Euro has not dipped below $1 • Current US dollar to Euro exchange rate March 10, 2009: • $1.27 : €1

  12. Summary • Enacted by Treaty of European Unity, 1992 • Economic Requirements to participate • Currency implemented January 1, 1999 • Physically distributed January 1, 2002 • Relatively stable exchange rates • Since 2000, above $1: €1

  13. Questions?

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