The Euro Its History and Future Qiaorong Zhang

The Birth of Euro  1957 Roma Treaties  1970 Plan on EMU  1979 EMU established  Phases for EMU  ST Phase Capital Free Transfer  1992 Maastricht Treaty  nd Phase Economy Policy Closer  1998 European Union Committee Meeting  rd Phase Euro Introduction  Bank Notes and Coins in Circulation  Euro is the Sole Currency

Three Pillars for EU

Map of Euro Area 2011

The Euro Zone Members  17 member states of European Union use the Euro as their Currency: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.  Non-Participants Bulgaria, Czech Republic, Denmark, Latvia, Hungary, Poland, Romania, Sweden and UK are EU member states but not currently use the single European currency.

European Central Bank  Independent of the pressures of national governments  Mandate to keep inflationary pressures low  Does not have a second objective to sustain growth and employment ((unlike the Federal Reserve in the United States of America) )Federal Reserve

The European Integration  Cheaper transaction costs  Currency risks and costs reduced  Price transparency and increased price- based competition

The Waves of Euro

Europe’s Destiny  1999~2002  2003~2008  ~ Now

Reasons for Depreciation  1: on Jan. 4,1999 drop to total depreciation of 29.8%  Macro economic- development difference  The interests of individual sovereign country VS concerns for EMU

Questions for You  What’s the advantages for a country to weaken its currency? A. Help on exportation B. Increase the Purchase Power

Reasons for Appreciation  911 attack in USA  Alan Greenspan : low-interest-rate policy

Sub-Prime Crisis Mortgage Companie s mid 2000sMar 2009 CompanyPrice Shares (millions) Mkt Cap (millions) Price Mkt Cap (millions) Notes Fannie Mae government conservator ship Freddie Mac government conservator ship Washingt on Mutual Bankruptcy banking ops sold to JP Morgan Chase Countrywi de Financial acquired by bank of America New Century Financial Corp bankruptcy

European Sovereignty Debt Crisis  PIIGS (Irish, Italy, Greek, Portuguese and Spanish)  Cumulative current-account deficits 2008 through 2010– €365 billion. Demonstrators at a rally in Lisbon in April protested rising unemployment amid the Portuguese crisis From Reuters

The Original Issue For Euro Currency

Solution A for Euro Zone  Take Over PIGS governments  EMU performs as one country

Solution B for Euro Zone  Exit mechanisms for PIGS  Negative impact: less influence of Euro currency

Solution C for Euro Zone  Bail-out fund pooled by healthy members to save PIGS  Negative impact: encourage the irresponsible attitudes with poorly performed countries

The Future of Euro  Depends on the solution to the PIGS crisis Collapse?  Depends on Federal Reserves management on USA international deficit

Resources  1.Impact Of US Sub-prime Crisis On Europe  Treaty   map of Euro area, 1999~2011  3.EU paints bleak picture for PIGs May 14, :56PM   4.The ECB's secret bailout strategy  By Hans-Werner Sinn (chinadaily.com.cn) Updated: :18   5.Evidence that the Fed Caused the Housing Boom  Mises Daily: Monday, December 15, 2008 by Robert P. MurphyRobert P. Murphy    The Rise and Fall of the Housing Market and its Impact on the U.S. Financial System   6.European sovereign debt crisis worsens as investors bet against Ireland, Portugal and Greece  12:28PM BST 18 Apr 2011  and-Greece.html and-Greece.html  7.Fiscal policy   8.The Euro The politics of the New Global Currency by David Marsh

Questions?  Thank you