Description
.It starts off with the history of Euro and then goes on to explain about the Bretton Woods and ERM system.It then explains the Euro Zone and the scenaios for adoption. It then goes on to explain the UK crisis and also the benefits of Euro.
Euro REUNIFICATION
The Euro - History
19571973197919911995199719992002• Treaty of Rome set the set the objective for Europe of creating a "common market" to increase economic prosperity. • Britten wood system collapsed and major currencies stopped pegging to US$. Currencies were allowed to float in a set ceiling • European Monetary System (EMS) established. An Exchange Rate Mechanism (ERM) of exchange rates pegged to each other within ±2.25% bands. • The Maastricht treaty transforms the European Community into a full Economic and Monetary Union • At Madrid European summit 15 member states gives formal undertaking to a single currency. • The Stability and Growth Pact is adopted by all the member countries at the Amsterdam European Council. • Stage 3 of Economic and Monetary Union begins
• The euro notes and coins are introduced and withdrawal of the Belgian franc begins
Bretton Woods and ERM
Bretton Woods system • rule for the commercial and financial relations among the world's major industrial • each country adopted a monetary policy that maintained a fixed exchange rate + or – 1% - in terms of gold • The system collapsed in 1971 as a result of increasing financial strain
ERM (Exchange Rate Mechanism)
• It gave currencies a central exchange rate against the ECU • It was hoped to help stabilise exchange rates, encourage trade within Europe and control inflation • It gave national currencies an upper and lower limit in which it could fluctuate • ERM was wrenched apart when a number of currencies could no longer keep within these limits
Euro Zone and Scenarios for adoption
• Euro Zone is an area which consists of those Member States of the European Union that have adopted the euro as their currency • It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain • Denmark and the United Kingdom opted out from the Maastricht treaty • Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union.
Madrid Scenario introduced in 1999 which set the legal framework and the timetable for the adoption of the euro, involved a gradual changeover during a three-year transitional period
The Big bang scenario - there was no
transitional period .It has helped in swift introduction of euro and helped in phasing out the national currency
Changeover scenario combination of the above two ,will be taken by future euro countries and will inform the EU institutions of their choice, it will also decide on the duration of any transitional or phasing-out periods, and dual circulation
Convergence Criteria
The economic entry criteria are intended to ensure economic convergence by checking: Exchange-rate Soundness and Long-term interest Price stability stability Sustainability of rates of the nation Consumer price Public Finances Long-term interest Check inflation rate not rate: Not more than Government deficit more than 1.5 Deviation from a as % of GDP: Not 2 percentage points percentage points central rate: above the rate of the more than 3% above the rate of the Participation in three best three best Government debt as performing Member ERM II for at least 2 performing Member % of GDP: Not States in terms of years without severe States more than 60% tensions price stability
EMU: How is it run?
Actors: Governments and Central banks of the Member States, the Council, the European Commission, the European Parliament and the European Central Bank
The management of EMU involves three main areas of macroeconomic policy-making:
• Monetary policy • Fiscal policy • Economic policy coordination
UK Crisis
• UK had joined the ERM in 1990 and had pegged its pound to German Deutsche Mark • Fundamental inconsistency in its internal and external policies
– End of WW-II, U.K was in the worst recession, with unemployment rates >10% : Warranted an expansionary monetary policy – German Re-unification : Inflation ? Contractionary monetary policy ? handcuffed by the fixed exchange rate system
UK Crisis(cont.)
• “Market Sentiment” going against the pound: Rumor spread that pound is getting devalued • Obstfeld’s 2nd generation model explanation of UK Crisis • The main impact of the events in Germany on the UK: • Inflation in Germany and consequently a contractionary monetary policy lead to increase in interest rates by Bundesbank by almost 3% in 1991 and 1992. This led to:
• Pound devalued (SER>FER) and struggling to stay within the permitted band plus Bank of England bought DM to reassure investors and Norman Lamont raised “i” from 10% to 12% to 15% but plan backfired forex reserves depleted Black Wednesday
Benefits of Euro
Consumer Benefits
•Market Competitiveness •Stable Prices •Easier, Safer and Cheaper borrowings •Lower Travel Costs •More growth and jobs
Business Benefits Economic Stability and Growth
•More cross border trade •Better borrowing, better planning and more investment •Better Access to capital •More international trade
•Sound and sustainable public finances •Better Government Budgeting •More resistance to external shocks •More Cohesion
Single Financial Market
An International Currency
doc_265223658.ppt
.It starts off with the history of Euro and then goes on to explain about the Bretton Woods and ERM system.It then explains the Euro Zone and the scenaios for adoption. It then goes on to explain the UK crisis and also the benefits of Euro.
Euro REUNIFICATION
The Euro - History
19571973197919911995199719992002• Treaty of Rome set the set the objective for Europe of creating a "common market" to increase economic prosperity. • Britten wood system collapsed and major currencies stopped pegging to US$. Currencies were allowed to float in a set ceiling • European Monetary System (EMS) established. An Exchange Rate Mechanism (ERM) of exchange rates pegged to each other within ±2.25% bands. • The Maastricht treaty transforms the European Community into a full Economic and Monetary Union • At Madrid European summit 15 member states gives formal undertaking to a single currency. • The Stability and Growth Pact is adopted by all the member countries at the Amsterdam European Council. • Stage 3 of Economic and Monetary Union begins
• The euro notes and coins are introduced and withdrawal of the Belgian franc begins
Bretton Woods and ERM
Bretton Woods system • rule for the commercial and financial relations among the world's major industrial • each country adopted a monetary policy that maintained a fixed exchange rate + or – 1% - in terms of gold • The system collapsed in 1971 as a result of increasing financial strain
ERM (Exchange Rate Mechanism)
• It gave currencies a central exchange rate against the ECU • It was hoped to help stabilise exchange rates, encourage trade within Europe and control inflation • It gave national currencies an upper and lower limit in which it could fluctuate • ERM was wrenched apart when a number of currencies could no longer keep within these limits
Euro Zone and Scenarios for adoption
• Euro Zone is an area which consists of those Member States of the European Union that have adopted the euro as their currency • It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain • Denmark and the United Kingdom opted out from the Maastricht treaty • Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union.
Madrid Scenario introduced in 1999 which set the legal framework and the timetable for the adoption of the euro, involved a gradual changeover during a three-year transitional period
The Big bang scenario - there was no
transitional period .It has helped in swift introduction of euro and helped in phasing out the national currency
Changeover scenario combination of the above two ,will be taken by future euro countries and will inform the EU institutions of their choice, it will also decide on the duration of any transitional or phasing-out periods, and dual circulation
Convergence Criteria
The economic entry criteria are intended to ensure economic convergence by checking: Exchange-rate Soundness and Long-term interest Price stability stability Sustainability of rates of the nation Consumer price Public Finances Long-term interest Check inflation rate not rate: Not more than Government deficit more than 1.5 Deviation from a as % of GDP: Not 2 percentage points percentage points central rate: above the rate of the more than 3% above the rate of the Participation in three best three best Government debt as performing Member ERM II for at least 2 performing Member % of GDP: Not States in terms of years without severe States more than 60% tensions price stability
EMU: How is it run?
Actors: Governments and Central banks of the Member States, the Council, the European Commission, the European Parliament and the European Central Bank
The management of EMU involves three main areas of macroeconomic policy-making:
• Monetary policy • Fiscal policy • Economic policy coordination
UK Crisis
• UK had joined the ERM in 1990 and had pegged its pound to German Deutsche Mark • Fundamental inconsistency in its internal and external policies
– End of WW-II, U.K was in the worst recession, with unemployment rates >10% : Warranted an expansionary monetary policy – German Re-unification : Inflation ? Contractionary monetary policy ? handcuffed by the fixed exchange rate system
UK Crisis(cont.)
• “Market Sentiment” going against the pound: Rumor spread that pound is getting devalued • Obstfeld’s 2nd generation model explanation of UK Crisis • The main impact of the events in Germany on the UK: • Inflation in Germany and consequently a contractionary monetary policy lead to increase in interest rates by Bundesbank by almost 3% in 1991 and 1992. This led to:
• Pound devalued (SER>FER) and struggling to stay within the permitted band plus Bank of England bought DM to reassure investors and Norman Lamont raised “i” from 10% to 12% to 15% but plan backfired forex reserves depleted Black Wednesday
Benefits of Euro
Consumer Benefits
•Market Competitiveness •Stable Prices •Easier, Safer and Cheaper borrowings •Lower Travel Costs •More growth and jobs
Business Benefits Economic Stability and Growth
•More cross border trade •Better borrowing, better planning and more investment •Better Access to capital •More international trade
•Sound and sustainable public finances •Better Government Budgeting •More resistance to external shocks •More Cohesion
Single Financial Market
An International Currency
doc_265223658.ppt