THE EURO – the rise and the fall[/b]
Euro – history:[/b]
The introduction on January 1, 1999, of the euro— the single currency adopted by eleven of the fifteen countries of the European Union—marked the beginning of the final stage of Economic and Monetary Union (EMU)and the start of a new era in Europe. This historic achievement was the culmination of a lengthy process that began in March 1957, when six European nations—Belgium, France, Germany, Italy, Luxembourg, and the Netherlands—signed the Treaty of Rome, thereby founding the European Economic Community (EEC).
The launch of the euro, unifying 11 economies in a common currency zone, created a market of nearly 300 million people, second in importance only to that of the United States. The world's governments and the financial press were dominated by only one question: "Will the euro challenge the pre-eminence of the dollar?"
The very posing of this question at that time indicated the historic significance of the euro. It represented a major development in the Single European Market established in 1992, the purpose of which was to create the conditions for Europe to compete effectively against the US and Asia.
The euro was the culmination of a project designed to meet the challenge posed by the globalization of production. The central aim of Europe's governments was to overcome the restrictions imposed by the division of the continent into a patchwork of national economies, with conflicting monetary and fiscal policies, tariffs and other restrictions on trade and investment.
The euro, in one sense, flowed logically from the project for European Union ongoing since the end of the Second World War. But its more immediate origins were in the striving by the European governments to formulate an economic and political response to the fundamental shifts within world capitalism during the late 1970s and 1980s.
The 1980s witnessed an integration of Europe's economies far surpassing anything during the previous 30 years. By the end of that decade, fully 60 percent of all European Community trade was within the EC itself, compared with 36 percent in 1958. Between Germany and France, cross border direct investment increased eight-fold, reaching a value of $2 billion. German firms had 2,000 subsidiaries in France, while France had 1,000 in Germany.
The growing fracturing of the world economy into the rival trade blocs--Japan and the Asia Pacific Rim countries and the formation of the North America Free Trade Agreement--provided added impetus. In 1987, for instance, German direct investment into the EC increased from DM3.8 billion the previous year to DM22.9 billion, a five-fold rise.
The Treaty of Rome was preceded in 1951 by the Treaty of Paris to which the same six European
nations were signatories; the Treaty of Paris established the European Coal and Steel Community, which aimed at the more-limited objective of pooling the coal and steel resources of member countries.
Over the years, membership in the EEC, which was renamed the European Union, grew from the initial six countries to fifteen, with Denmark, Ireland, and the United Kingdom becoming full members in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Finland, and Sweden in 1995.
Although the Treaty of Rome created a closer economic union among member countries, these countries did not at the time envisage an actual monetary union. In 1971, a group of European experts developed a proposal for coordinated or harmonized monetary policy among EEC members; further progress toward monetary integration was set in motion by the establishment in 1979 of a system of stable, but adjustable, exchange rates known as the European Monetary System.
The Single European Act, signed in 1986, affirmed old objectives and set new ones, including the establishment of a European single market and the gradual realization of monetary union.
In December 1991 in the Dutch city of Maastricht, European Union (EU) nations produced the Maastricht Treaty.
The Maastricht Treaty, became the effective ‘‘constitution’’ for EMU, providing the criteria for judging macroeconomic convergence and laying the groundwork for the eventual establishment of the European Central Bank. In early May 1998, the heads of state or government of the fifteen EU countries agreed that eleven countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) should move forward into the final stage of EMU, creating an economic area comparable in size to that of the United States.
As specified in the Maastricht Treaty, the primary objective of the ECB was to ‘‘maintain price stability.’’ Without jeopardizing this objective, the ECB was also expected to support the general economic policies of the European Commission.
The main duties of the central bank were stated to be the regulation of the amount of money in circulation and of credit supplied to the economy with the aim of ‘‘safeguarding the currency.’’ In practice, safeguarding the currency was interpreted to mean price stability.
The European Central Bank came into formal existence on June 1, 1998, and took over responsibility for the monetary policy of the EMU member states on January 1, 1999.
The creation of a single currency and a single monetary policy provided both extraordinary challenges and exceptional opportunities within Europe at the start of this century.
For financial firms, the creation of the euro required conversion of numerous existing accounts and systems for trading, risk analysis, and liquidity management to the new currency. Although development of these systems had been ongoing for several years, the actual switchover took place over the long ‘‘conversion weekend’’ from the close of business on December 31, 1998, through the opening of business on January 4, 1999.
The establishment of the single monetary area and the removal of currency risk among member countries were expected to provide unprecedented opportunities for cross- border trading, portfolio expansion, and mergers and acquisitions among European companies.
With the start of the final stage of the Economic and Monetary Union (EMU), monetary policy was no longer to be set individually at each of the national central banks of the euro-area countries. Instead, monetary policy was to be determined for the euro area as a whole by the Euro system. The Euro system comprised the new European Central Bank (ECB) at its center as well as the national central banks of the eleven countries participating in the monetary union at that time. The Maastricht Treaty granted the ECB full constitutional independence. It explicitly stated that neither the ECB nor any member of its decision-making
Euro – history:[/b]
The introduction on January 1, 1999, of the euro— the single currency adopted by eleven of the fifteen countries of the European Union—marked the beginning of the final stage of Economic and Monetary Union (EMU)and the start of a new era in Europe. This historic achievement was the culmination of a lengthy process that began in March 1957, when six European nations—Belgium, France, Germany, Italy, Luxembourg, and the Netherlands—signed the Treaty of Rome, thereby founding the European Economic Community (EEC).
The launch of the euro, unifying 11 economies in a common currency zone, created a market of nearly 300 million people, second in importance only to that of the United States. The world's governments and the financial press were dominated by only one question: "Will the euro challenge the pre-eminence of the dollar?"
The very posing of this question at that time indicated the historic significance of the euro. It represented a major development in the Single European Market established in 1992, the purpose of which was to create the conditions for Europe to compete effectively against the US and Asia.
The euro was the culmination of a project designed to meet the challenge posed by the globalization of production. The central aim of Europe's governments was to overcome the restrictions imposed by the division of the continent into a patchwork of national economies, with conflicting monetary and fiscal policies, tariffs and other restrictions on trade and investment.
The euro, in one sense, flowed logically from the project for European Union ongoing since the end of the Second World War. But its more immediate origins were in the striving by the European governments to formulate an economic and political response to the fundamental shifts within world capitalism during the late 1970s and 1980s.
The 1980s witnessed an integration of Europe's economies far surpassing anything during the previous 30 years. By the end of that decade, fully 60 percent of all European Community trade was within the EC itself, compared with 36 percent in 1958. Between Germany and France, cross border direct investment increased eight-fold, reaching a value of $2 billion. German firms had 2,000 subsidiaries in France, while France had 1,000 in Germany.
The growing fracturing of the world economy into the rival trade blocs--Japan and the Asia Pacific Rim countries and the formation of the North America Free Trade Agreement--provided added impetus. In 1987, for instance, German direct investment into the EC increased from DM3.8 billion the previous year to DM22.9 billion, a five-fold rise.
The Treaty of Rome was preceded in 1951 by the Treaty of Paris to which the same six European
nations were signatories; the Treaty of Paris established the European Coal and Steel Community, which aimed at the more-limited objective of pooling the coal and steel resources of member countries.
Over the years, membership in the EEC, which was renamed the European Union, grew from the initial six countries to fifteen, with Denmark, Ireland, and the United Kingdom becoming full members in 1973, Greece in 1981, Spain and Portugal in 1986, and Austria, Finland, and Sweden in 1995.
Although the Treaty of Rome created a closer economic union among member countries, these countries did not at the time envisage an actual monetary union. In 1971, a group of European experts developed a proposal for coordinated or harmonized monetary policy among EEC members; further progress toward monetary integration was set in motion by the establishment in 1979 of a system of stable, but adjustable, exchange rates known as the European Monetary System.
The Single European Act, signed in 1986, affirmed old objectives and set new ones, including the establishment of a European single market and the gradual realization of monetary union.
In December 1991 in the Dutch city of Maastricht, European Union (EU) nations produced the Maastricht Treaty.
The Maastricht Treaty, became the effective ‘‘constitution’’ for EMU, providing the criteria for judging macroeconomic convergence and laying the groundwork for the eventual establishment of the European Central Bank. In early May 1998, the heads of state or government of the fifteen EU countries agreed that eleven countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) should move forward into the final stage of EMU, creating an economic area comparable in size to that of the United States.
As specified in the Maastricht Treaty, the primary objective of the ECB was to ‘‘maintain price stability.’’ Without jeopardizing this objective, the ECB was also expected to support the general economic policies of the European Commission.
The main duties of the central bank were stated to be the regulation of the amount of money in circulation and of credit supplied to the economy with the aim of ‘‘safeguarding the currency.’’ In practice, safeguarding the currency was interpreted to mean price stability.
The European Central Bank came into formal existence on June 1, 1998, and took over responsibility for the monetary policy of the EMU member states on January 1, 1999.
The creation of a single currency and a single monetary policy provided both extraordinary challenges and exceptional opportunities within Europe at the start of this century.
For financial firms, the creation of the euro required conversion of numerous existing accounts and systems for trading, risk analysis, and liquidity management to the new currency. Although development of these systems had been ongoing for several years, the actual switchover took place over the long ‘‘conversion weekend’’ from the close of business on December 31, 1998, through the opening of business on January 4, 1999.
The establishment of the single monetary area and the removal of currency risk among member countries were expected to provide unprecedented opportunities for cross- border trading, portfolio expansion, and mergers and acquisitions among European companies.
With the start of the final stage of the Economic and Monetary Union (EMU), monetary policy was no longer to be set individually at each of the national central banks of the euro-area countries. Instead, monetary policy was to be determined for the euro area as a whole by the Euro system. The Euro system comprised the new European Central Bank (ECB) at its center as well as the national central banks of the eleven countries participating in the monetary union at that time. The Maastricht Treaty granted the ECB full constitutional independence. It explicitly stated that neither the ECB nor any member of its decision-making