European Union Established in accordance with Masstricht Treaty (1993) 27 countries –Motto: Unity in Diversity Four Freedoms –People –Goods –Services –Capital

Eurozone Objectives –Price Stability –Financial Stability –Financial Integration 16 participating countries –Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain Eight more countries will be inducted when they meet the criteria

Criteria Inflation –No more than 1.5 percent higher than average of the three lowest members Government Finance –Ratio of gov. defecit to GDP may not exceed 3 percent –Ratio of gov. debt to GDP may not exceed 60 percent Exchange Rate –Must be a member of ERM II for two years Interest Rates –Long-term rate cannot be more than two percent higher than three lowest inflation members

Eurosystem Governing monetary authority Price Stability; Financial Stability; Financial Integration European Central Bank (ECB) –Manages & administers euro National Banks –Prints, mints, and distributes notes and coins

The Euro Non-physical release on January 1, 1999 Rates were locked in the day before Actual notes and coins released January 1, 2002 Epsilon –Double strikethrough denotes stability Placement of the sign isn’t definitive

Exchange Rate vs Dollar

A Few Benefits Low Inflation Rates Ease of Trade Governmental Influence International Risk Sharing