Henry Kirse & Danielle Briggs

 WWII destroyed political and economic systems in Europe  1946 Bretton Woods Agreement  Created the International Monetary Fund  Replaced gold with US dollar  1957 Treaty of Rome  Created European Economic Community ▪ Fluctuating Exchange Rates

 “Nixon Shocks”  1971  President Nixon moved the US dollar away from the gold standard  This ended dollar convertibility and the fixed gold exchange rate of $35/ounce  Motivated the European Economic Community to create a monetary system not dependant on the US dollar.

 European Currency Unit  Composite currency used for transactions  4.5% Barrier to exchange rate  European Monetary System  Allowed only minor fluctuations in exchange rates between European Countries

 Treaty of European Unity, 1992  Maastricht, Netherlands  Dictated that a monetary union would be implemented by 1999  Called for a common monetary and economic policy among member nations  Created the European Central Bank ▪ Located in Frankfurt, Germany ▪ Administers Monetary Policy

 1. Inflation rate: No more than 1.5 percentage points higher than the three lowest inflation member states of the EU.  2. Government finance:  Annual government deficit: The ratio of the annual government deficit to GDP must not exceed 3%  Government debt: The ratio of gross government debt to gross domestic profit not exceed 60%.  3. Exchange rate: Applicant countries should have joined the exchange rate mechanism under the EMS for 2 consecutive years and should not have devaluated its currency during the period.  4. Long-term interest rates: The nominal long-term interest rate must not be more than two percentage points higher than in the three lowest inflation member states.

 January 1, 1999  11 countries adopted the common currency  Locked in national currency rates against euro  January 1, 2002  Physical Currency Issued  12 countries adopted single currency

 11 beginning countries has expanded to 16  As of November 2008  €751 billion in circulation  Roughly $953 billion  EuroZone is the 2 nd largest economy in the world

 At implementation exchange rate was $1.17 to € 1.  Lowest rate occurred October 27, 2000  $.8229 : € 1  Since 2002, Euro has not dipped below $1  Current US dollar to Euro exchange rate March 10, 2009:  $1.27 : €1

 Enacted by Treaty of European Unity, 1992  Economic Requirements to participate  Currency implemented January 1, 1999  Physically distributed January 1, 2002  Relatively stable exchange rates  Since 2000, above $1: €1