1. Alexander Consulting Enterprise 10/16/2015 The European Union and the EURO

2. Alexander Consulting Enterprise 10/16/2015 Successful Economic Union Requirements -Economic Compatibility -Political Compatibility -Geographic Proximity -Cultural Compatibility Weakness in some must be balanced by strengths in others

3. Alexander Consulting Enterprise 10/16/2015 European Union 1. What does it mean: - Free Movement of People - Free Movement of Goods - Mutual Recognition of National Standards but also - Different Cultures - Different Languages - National Governments - National Laws

4. Alexander Consulting Enterprise 10/16/2015 2. Objectives - Economic - Social - Political 3. Who Participates?

5. Alexander Consulting Enterprise 10/16/2015 EU Member Countries -Old Members Austria€ Belgium € Denmark Finland € France € Germany € Greece € Ireland € Italy € Luxembourg € Netherlands € Portugal € Spain € Sweden UK -New Members Cyprus € Czech Republic Estonia € Hungary Latvia Lithuania Malta € Poland Slovak Republic € Slovenia € Rumania Bulgaria Croatia -In Negotiations Turkey € Countries that adopted the EURO

6. Alexander Consulting Enterprise 10/16/2015 EC Institutions European Commission Council of Ministries European Parliament European Court of Justice

7. Alexander Consulting Enterprise 10/16/2015 EMU Acronym for Economic and Monetary Union. EMU is a three stage process: - 1 July 1990: Free movement of capital and closer coordination of economic policies. - 1 January 1994: Definition of convergence criteria. - 1 January 1999: Fixation of accession rates, Introduction of single currency (the Euro), establishment of ECB - 1 January 2002: Distribution of Euro coins and bills 1.What is EMU? 2. Who is Participating? EU member states that fulfilled the convergence criteria: Austria, Belgium, Finland, France, Germany, Greece. Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

8. Alexander Consulting Enterprise 10/16/2015 3. How Does it Work? All national currencies of member states convert into the EURO at an irrevocably fixed rate. The EURO will float freely against other main currencies (yen, $). National banknotes will cease to be legal on 1 July 2002. 4. What is the role of the ECB? The Governing Council of the European Central Bank (ECB) consists of six executive board members responsible for current business and the 11 ministers of the National Central banks. The ECB is responsible for the money supply in Euroland. 5. How big is Euroland? 290 million people, $6,802 billion GDP versus 267 million people, $7,100 billion GDP in U.S., and 125 million people, $ 4,964 billion GDP in Japan

9. Alexander Consulting Enterprise 10/16/2015 The exchange rate weapon is ruled out. There is no redistribution effect of federal taxes (For example: If one part of the U.S. moves into recession, its tax payments (linked to income and sales) will fall and federal benefit payments will rise). Adjustments in the EMU will have to take place through: - Relocation of workers - Relocation of businesses - Change of wages - Transfer payments between EMU member states 6. Does the EMU lead to a loss of sovereignty of its member states? A nation’s currency symbolizes national autonomy. Monetary policy is a powerful economic instrument, that has an impact on inflation, interest rates, governmental debt, short term unemployment, and economic cycle 7. What happens if the economic cycles in different EMU member states are out of synch?

10. Alexander Consulting Enterprise 10/16/2015 8. What are potential benefits of the EMU? Lower cost of managing cash for companies operating across national borders within Euroland Elimination of currency risk in Euroland Lower cost of hedging currency risk between EURO and non-EURO currencies Bigger markets. Customers will more readily purchase across national boundaries, unimpeded by the complexities of different currencies

11. Alexander Consulting Enterprise 10/16/2015 Different economic cycles and different productivity rates of EMU member state will lead to tensions and political pressure on the ECB Socially unacceptable high unemployment rate in certain member states Politically unacceptable high transfer payments Inflation International trust in the EURO as a stable currency can not be established 9. What are potential risks of the EMU?

12. Alexander Consulting Enterprise 10/16/2015 10 Who is potentially benefiting the most from the EMU? - Efficient customer oriented companies - Manufacturing sector with long lived assets that have been subject to exchange rate uncertainty