Topic: What is Euro?

What is euro?

Group: SMMT 73/22

Student: Solihov Abduqodir

Euro Currency

Introduction

• Euro is the official currency of the European Union.
• Eleven member states have adopted it collectively known as Eurozone.(Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, etc.)
• Taking official estimates of 2007 GDP, the Eurozone is the 2nd largest economy in the world.
• The euro was introduced to world financial markets as an currency in 1999 and launched coin and Banknote on 1st, January 2002.
• All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty
• The euro sign (€) is the currency sign used for the euro the official currency of the European Union(EU).
• The design was presented to the public by the European Commission on 12th December, 1996.
• The international three-letter code (according to ISO standard ISO 4217) for the euro is EUR

MAASTRICHT TREATY

• -Also known as Treaty on European union
• Signed on 7 February 1992 between members of European community
• Led to the creation of EURO

EUROPEAN MONETARY UNION

• EMU is the agreement among the participating member states of the European Union to adopt a single currency and monetary system.
• Eleven countries have been selected as the members of EMU. As part of the EMU, these eleven countries now make up the world's second-largest economy, after the United States
• Greece and Sweden, failed to meet the convergence requirements in time to join the EMU in the first round. Sweden failed to satisfy two of the conditions:
• laws governing Sweden's central bank were not compatible with the Maastricht Treaty and the currency exchange rates in Sweden were not sufficiently stable for the previous two years. Greece failed to meet all of the requirements

EUROPEAN MONETARY INSTITUTE

• The European Monetary Institute (EMI) was the forerunner of the European Central Bank(ECB).
• It encouraged cooperation between the national banks of the member states of the EU
• Further budget constraints are required in countries (Italy and Belgium) meet the requirements of the pact.

CONVERGENCE CRITERIA

• Price stability: Inflation rate should not exceed 1.5% that of three best performing member state.
• Annual government deficit: the ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3%
• Government debt: the ratio of gross government debt to GDP must not exceed 60% at the end of the preceding financial year.
• Long-term interest rates. In practice, the nominal long-term interest rate must not exceed by more than 2 percentage points that of, at most, the three best-performing Member States

SWITCH TO THE EURO AT VARYING SPEEDS

• Banking for individuals will probably switch to Euros at a last stage Done largely in local currency up to final changeover
• Corporate banking may well start using earlier
• Adoption of Euro in corporate sector
• Plan of large companies to adopt euro as company currency Expected their customers and suppliers to use Euros in transactions
• Internationally oriented medium sized companies will probably also turn quickly to new currency in many of their functions
• Smaller domestically oriented companies, self employed and households will keep more or less to national currency until euro coins or notes and coins are introduced

Second regulation

• Based on article 109 of the treaty-on the introduction of the euro was passed during the May 1998
• Established principle that who wants to use the euro can but no one can be forced to
• Determines the legal status of euro vs. the national currencies
• Euro EG opened company,stock exchange,accounting¤cy law to the Euro
• •Paved way for changeover on the financial markets & exchanges that lead companies to adjust their accounts,equity capital structure

THE EUROPEAN CENTRAL BANK

• EUROPEAN ECONOMIC AND MONETARY UNION (EMU):
• EMU consists three stages
• 1ST Stage(1 July 1990 to 31 December 1993):
• The Treaty of Maastricht in 1992 establishes the completion of the EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability.
• The treaty enters into force on the 1 November 1993.
• 2nd stage(1 January 1994 to 31 December 1998):
• The European Monetary Institute is established as the forerunner of the European Central Bank

On 16 December 1995, details such as the name of the new currency (the euro) as well as the duration of the transition periods are decided.
New exchange rate mechanism (ERM II) is set up to provide stability between the euro and the national currencies of countries that haven't yet entered the eurozone
The 11 initial countries that will participate in the third stage from 1 january 1999 are selected.
On 1 June 1998, the European Central Bank (ECB) is created
3rd Stage(1 January 1999 and continuing)
From the start of 1999, the euro is now a real currency, and a single monetary policy is introduced under the authority of the ECB.

ECB FUNCTIONING MECHANISM

• ECB working procedures are segregated into three parts:
• 1. GOVERNMENTAL
• 2. EXECUTIVE SECTION
• 3. GENERAL BODY

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