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HOW THE EUROPEAN SINGLE CURRENCY EVOLVED

This article explores the reasons behind the monetary cooperation in Europe and the evolution of the European single currency. It covers the European Monetary System, the Maastricht Treaty, the Euro "1992" initiative, the Euro Zone, the Stability and Growth Pact, the European Central Bank, and the Revised EXRT mechanism.

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HOW THE EUROPEAN SINGLE CURRENCY EVOLVED

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  1. HOW THE EUROPEAN SINGLE CURRENCY EVOLVED By Adam Dangelmayr & Ibrahim Kekec

  2. REASONS BEHIND THE MONETARY COOPERATION • To enhance the Europe’s role in the world monetary system. • To turn the European Union into a truly unified market.

  3. European Monetary System (EMS) 1979-1998 • Capital control through fixed exchange rates • German Monetary Dominance & the Credibility Theory of the EMS • Stability through fixed exchange rates • Discouraged inflation

  4. The Maastricht Treaty in 1991 • The beginning of the European Economic and Monetary Union (EEMU) • Why important • Greater degree of market integration • The end of German dominance and macro policies • A cushion to speculative attacks • Historical reasons

  5. The Euro “1992” Initiative • Market liberalization • Free flow of goods & services, and factors of production Microeconomic efficiency and macroeconomic stability

  6. The Euro Zone • The Maastricht Convergence Criteria • Inflation rate no more than 1.5 percent • Stable EXRT • Public deficit no more than 3 percent of the country’s GDP • Public debt below 60 percent of its GDP • Ongoing monitoring of criteria 3 and 4

  7. Stability and Growth Pact • A cushion against inflationary pressures • Set budgetary objectives stopping excessive public debt and deficits The European Central Bank (ECB) • Headquartered in Frankfurt plus 15 other national banks • The governing council • 6 ECB members and heads of national central banks • Price stability with supreme privileges • Above the European Parliament

  8. The Revised EXRT Mechanism • A tool to keep the target of low inflation • Discourages the competitive devaluations against the Euro by the union countries that are not a part of EMS • One of the conditions in the Maastricht Treaty

  9. THANK YOU

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