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European Monetary system and Euro

Submitted to

Prof. Smita Kumar

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GROUP MEMBERS

ABHISHEK TAWDE 1

ANAMIKA SINGH 3

ROHIT GUPTA 30

SAGAR NAWALE 32

VISHAL KARADE 39

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EUROPEAN MONETRY SYSTEM

EMS is a Monetary System originated in an attemptto stabilize inflation and stop large exchange-ratefluctuations between European countries.

A 1979 arrangement between several European

countries which links their currencies in an attempt tostabilize the exchange rate. This system wassucceeded by the European Monetary Union (EMU),an institution of the European Union (EU), whichestablished a common currency called the euro.

Solution to the end of Bretton Wood system.

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EMS MEMBER

Belgium, Denmark, France, Ireland, Italy,Luxembourg, the Netherlands, and WestGermany are the initially participate members.

Spain joined in 1989 & UK in 1990. Portugal and Greece are members but do not

participate fully

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WHY EMS COME

High global Inflation.

Economic stagnation.

Currency fluctuation. To Stabilized the local currency.

Reducing import & Export taxes.

Giving strength and protection to each other.

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Parity Grid

parity gridbilateral central parities to theECU

narrow fluctuation band ( 2,25 % or

6,0 %)

unanimous agreement on realignments

ECU as reserve currency, unit of account weighted average of the EMS

currencies

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ECU

Is a basket of the currencies of the European

Community.

The ECU was conceived on 13 March 1979 as

an internal accounting unit.

The ECU was used as the International

financial transition.

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Snake In The Tunnel(1972-73)

The snake in the tunnelwas the first attempt

at European monetary cooperation in the

1970s, aiming at limiting fluctuations between

different European currencies.

It was an attempt at creating a single currency

band for the European Economic

Community(EEC) essentially pegging all theEEC currencies to one another

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Snake In the Tunnel

Fluctuation band around USD (1,125%)

compared with (2,25%) of the IMF members.

Speculative pressure, oil shocks, economic

divergence

Challenges for the philosophy of monetary

integration.

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Maastricht Treaty - The Treaty on

European Union

Treaty establishing the European Community.

Agreed in 1991,Signed in 1992.

Important step in the European integrationprocess.

Creation of the European monetary

Union(EMU).

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Maastricht Treaty

Commitment to launch single currency before

1999.

Introduces five criteria for admission to the

monetary union.

Mentioned condition on the fiscal policy.

Economic definition of the EMU.

UK + DK negotiated option out arrangement.

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Maastricht Criteria

Monetary criteria

inflation rate ( 1,5 %)

long-term interest rate ( 2,0 %)

exchange rate stability (ERM)

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Maastricht Criteria

Fiscal criteria

budget deficits (3 %) government debt (60 %)

relationship between Maastricht fiscal criteria

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Euro

When did Euro begin?

The name euro was officially adopted on 16 December 1995.The euro wasintroduced to world financial markets as an accounting currency on 1January 1999, replacing the former European Currency Unit (ECU) .

1999The euro was adopted by eleven countries including Austria, Belgium,

Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,Portugal and Spain as their official currency.

2001

Greece became country number 12 to adopt the euro.

2002The euro became the common currency of Europe for twelve countries in the

European Union

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EURO ( )

Why Did the Euro Start?

Where is the Euro Being Used?

The euro was adopted by twelve countries including

Austria, Belgium, Finland, France, Germany, Ireland,

Italy, Luxembourg, The Netherlands, Portugal , Spain

and Greece in 2002. 5 members were joined latter to become 17 Members.

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Future of EURO

Sovereign debt problem of some countries.

Continuously weakening against Dollar

The PIIG nations are overleveraged. Germany are not in a mood to Bailout the

Greece..

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