1. The Euro

4. Euro nations: Austria, Belgium, Finland, France,Germany,Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,Spain

5. Who’s missing? Denmark United Kingdom Sweden

6. How it all started... WWI and WWII 1950 – European Payments Union –Facilitated settlement of net trade surpluses and deficits 1951 – European Coal and Steel Community –Model for European Union

7. 1969 – The Hague Summit –Resolved to make economic and monetary union a goal for the entire continent –Committee formed, chaired by Luxembourg’s Prime Minister, Pierre Werner Werner Report –Three step plan implemented over 10 years Reduce fluctuation of national currencies Integrate financial markets and banking systems Permanently fix exchange rates, establish ECB

8. Tricky Dicky drops a bomb... Werner Report/Plan abandoned in 1971 President Nixon announces that the United States would no longer adhere to the gold standard –Destabilizes foreign exchange market –Undermines confidence in further economic unification

9. Single European Act Treaty laid the groundwork for elimination of trade barriers between European countries in 1986 Led to establishment of European Central Bank in 1998 Exchange rates permanently fixed in 1999 Euro is born

10. No money? Three year transition period without paper currency Financial markets and governments conducted electronic transactions

11. Club Membership - EMU Maastricht Convergence Criteria –An inflation rate of no more than 1.5% greater than the average of the three countries with the lowest inflation rates –Long-term interest rates not in excess of 2% above the average of the three countries with the lowest inflation rates

12. No deviation of the currency from the EUR by more than 15% in the two years preceding the entrance into the monetary union A fiscal deficit of no more than 3% of GDP A ratio of general government debt to GDP of not more than 60%

13. Would the US qualify? Let’s see...

14. 2004 GDP: $11,735 Billion Current public debt: $7,787 Billion Do the math: –7,787/11,735 = 66% They wouldn’t let us in...

15. Logistics How do you introduce entirely new currency? –Front-load central banks with 130 billion in notes and 30 billion in coins –Removed national currencies within two months

16. Advantages Travel and trade simplification Price stability Political unification International investment/reserve currency World economic power –1 euro = 1.22 USD –Started out at.85 euro = 1 USD

17. Disadvantages Strict membership requirements High maintenance cost –Ten former Eastern Bloc countries desire membership

18. Future Gaining value Increased acceptance Political Unity???? –“United States of Europe” voted down by France and Netherlands

19. Questions?