Download - The Euro: Past and Future
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Henry Kirse & Danielle Briggs
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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
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“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.
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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
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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
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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.
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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
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11 beginning countries has expanded to 16
As of November 2008 €751 billion in circulation Roughly $953 billion
EuroZone is the 2nd largest economy in the world
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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
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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
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