history of europethe

8/8/2019 History of Europethe

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2002 Introduction of euro banknotes and coins

2007 Slovenia

2008 Cyprus, Malta

2009 Slovakia

1999

The euro and Economic and Monetary Union

All EU Member States form part of Economic and Monetary Union (EMU), which can be described as

an advanced stage

of economic integration based on a single market. It involves close co-ordination of economic andfiscal policies and,

for those countries fulfilling certain conditions, a single monetary policy and a single currency theeuro. The process of

economic and monetary integration in the EU parallels the history of the Union itself. When the EUwas founded in 1957,

the Member States concentrated on building a 'common market'. However, over time it became

clear that closer economic

and monetary co-operation was desirable for the internal market to develop and flourish further.But the goal of achieving

full EMU and a single currency was not enshrined until the 1992 Maastricht Treaty (Treaty onEuropean Union), which set

out the ground rules for its introduction. These say what the objectives of EMU are, who isresponsible for what, and what

conditions Member States must meet in order to adopt the euro. These conditions are known as the

'convergence criteria'

(or 'Maastricht criteria') and include low and stable inflation, exchange rate stability and soundpublic finances.

Who manages it?


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When the euro came into being, monetary policy became the responsibility of the independentEuropean Central Bank

(ECB), which was created for that purpose, and the national central banks of the Member States

having adopted the

euro. Together they compose the Eurosystem. Fiscal policy (tax and spending) remains in the handsof individual national

governments though they undertake to adhere to commonly agreed rules on public financesknown as the Stability and

Growth Pact. They also retain full responsibility for their own structural policies (labour, pension andcapital markets), but

agree to co-ordinate them in order to achieve the common goals of stability, growth and

employment.

Who uses it?

The euro is the currency of the 329 million people who live in the 16 euro-area countries. It is alsoused, either formally as

legal tender or for practical purposes, by a whole array of other countries such as close neighbours

and former colonies.It is therefore not surprising that the euro has rapidly become the second most importantinternational currency after the

dollar, and in some respects (e.g. the value of cash in circulation) has even overtaken it.

Why do we need it?

Apart from making travel easier, a single currency makes very good economic and political sense.The framework under

which the euro is managed makes it a stable currency with low inflation and low interest rates, andencourages sound

public finances. A single currency is also a logical complement to the single market which makes itmore efficient. Using


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a single currency increases price transparency, eliminates currency exchange costs, oils the wheelsof the European

economy, facilitates international trade and gives the EU a more powerful voice in the world. Thesize and strength of

the euro area also better protect it from external economic shocks, such as unexpected oil pricerises or turbulence in

the currency markets. Last but not least, the euro gives the EU s citizens a tangible symbol of theirEuropean identity, of

which they can be increasingly proud as the euro area expands and multiplies these benefits for itsexisting and future

members

---------------------------------------------------------------

The introduction of the euro first as book money in 1999 and later as physical notes and coins in2002 is one of

the European Union s crowning achievements. Euro notes and coins are now an integral part of people s lives and a

commercial reality.

Last update: 18/5/2009.

Years of planning and preparation went into the euro s design to find a good balance of aestheticappeal, practical

dimensions and security features resulting in the seven banknotes and eight coins designed for thelaunch in January

2002.

The notes share the same designs across all countries in the euro area. The coins have a commondesign on one side

and a country-specific design on the other.


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The European Central Bank (ECB) has the exclusive right to authorise the issue of euro banknotes bythe national central

banks of the euro area. The responsibility for producing them and putting them into circulation is

shared among national

central banks. Coins are issued by euro area Member States in volumes approved each year by theECB and production

is entrusted to the national mints.

Greek and Latin inspiration

Like all currencies the euro has a name and a symbol:

The name the euro was chosen by the European Council meeting in Madrid in 1995 as

part of the preparations for the single currency.The euro symbol was inspired by the Greek letter epsilon (?). It also stands for the first

letter of the word Europe in the Latin alphabet, while the two parallel lines running through

the symbol signify stability. The European Commission organised an internal competition to

come up with the euro symbol. Some 30 drafts were considered ten of which were tested

on the public and the final design was selected from two short-listed proposals by the then

President of the Commission, Jacques Santer, and Commissioner Yves Thibault de Silguy in

1995.

All shapes and sizes


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The different sizes and contrasting colours and relief patterns of euro banknotes help people including the visually

impaired recognise the denominations. The notes come in 5-, 10-, 20-, 50-, 100-, 200- and 500-

euro denominations.

There are various security features in the notes, such as a watermark, security thread and hologram,to stop

counterfeiters and help recognise a genuine banknote.

Advanced technical specifications were also developed for the coins, making illegal reproduction,especially for the 1- and

2-euro coins, extremely difficult. The eight denominations of coins vary in size, colour and thicknessaccording to their

values, which are 1, 2, 5, 10, 20 and 50 cents, and 1 euro and 2 euros.

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Euro banknotes

The euro banknotes share the same designs across all countries in the euro area. Their sevendenominations bear

distinctive features, sizes and colours for aesthetic and practical reasons. Their designs, by AustrianRobert Kalina, from

the sterreichische Nationalbank (Austrian National Bank), were selected after a competition callingfor innovative and

balanced proposals.

The European Monetary Institute (EMI) (the forerunner of the ECB) launched a Europe-wide designcompetition in 1996.

From the 44 submissions, a jury of independent experts in marketing, design, advertising and arthistory produced a


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shortlist. A survey of professional cash handlers and the general public was then performed. On thebasis of the jury

recommendations and the results of the survey the Council of the EMI selected the winning designseries in 1996.

The winning designs for the 5, 10, 20, 50, 100, 200 and 500 euro banknotes were inspired by thetheme the ages

and styles of Europe and depict the architectural styles from seven periods of Europe s culturalhistory: Classical,

Romanesque, Gothic, Renaissance, Baroque and Rococo, the Age of Iron and Glass, and modern 20thcentury

architecture. All notes depict typical elements of these periods, such as windows, gateways and

bridges.

The windows and gateways on the front side symbolise the European spirit of openness and co-operation. The 12 stars

of the EU represent the dynamism and harmony of contemporary Europe, while the bridges on theback symbolise

communication between the people of Europe and between Europe and the rest of the world.

Feel, look, tilt

Euro notes have advanced security features built into them, detectable through visual and tactilemeans:

Thanks to a special printing process, banknotes have a unique, raised feel.


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Look for visible features on the notes (from the front or back): a watermark, security thread

and a see-through number.

A moving image or hologram can be seen by tilting the notes: on the back, a glossy stripe

appears (on the 5-, 10- and 20-euro banknotes) or a colour-changing number (on the 50-,

100-, 200- and 500-euro notes).

Additional security features can be checked with a magnifying glass (microprinting) and an

ultraviolet lamp (special colour effects).

The European Central Bank provides guidance on how to spot a fake banknote.

>> View euro banknotes

Who issues banknotes?

The European Central Bank (ECB) has the exclusive right to authorise the issue of banknotes by thenational central

banks within the euro area. All decisions on the banknote designs, denominations, etc. are taken bythe ECB.

The different national central banks of the euro area are then in charge of the practical aspects of producing and putting

banknotes into circulation, since they provide commercial banks and the cash-in-transit sector withthe necessary

quantities.

>> National central banks


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In circulation

Around 14.9 billion euro-banknotes were printed, worth some 633 billion, in preparation for theeuro cash launch. Around

7.8 billion banknotes worth 221 billion were available in the euro area beginning of January 2002when euro cash was

launched. Since then, demand has grown continuously and the value of the banknotes in circulationhas almost tripled.

As of 31 May 2009, there are over 12.7 billion euro banknotes in circulation worth about 761 billioneuros. The European

Commission produces a regularly updated overview of the main facts and figures on euro banknotes

[177 KB] .

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National central banks in the European union

Nationale Bank van Belgi Banque Nationale de

Belgique

Bulgaria:

Balgarska narodna banka

Czech Republic: esk nrodn banka

Denmark:

Danmarks Nationalbank

Germany:

Deutsche Bundesbank

Estonia:


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Eesti Pank

ire/Ireland:

Central Bank and Financial Services Authority of Ireland

Greece:

Bank of Greece

Spain:

Banco de Espaa

France:

Banque de France

Italy:

Banca dItalia

Cyprus:

K Central Bank of Cyprus

Latvia:

Latvijas Banka

Lithuania:

Lietuvos bankas

Luxembourg:

Banque centrale du Luxembourg

Hungary:

Magyar Nemzeti Bank

Malta:

Bank entrali ta Malta Central Bank of Malta

The

De Nederlandsche Bank

Netherlands:

Austria:


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sterreichische Nationalbank

Poland:

Narodowy Bank Polski

Portugal:

Banco de Portugal

Romania:

Banca Na ional a Romniei

Belgium:

Slovenia:

Banka Slovenije

Slovakia:

Nrodn banka Slovenska

Finland:

Suomen Pankki Finlands Bank

Sweden:

Sveriges Riksbank

United Kingdom: Bank of England

Euro Disney Case Study I

By Dagmar Recklies

The following report was written as an assignment in the authors MBA-course for the

subject Managing Resources Accounting. It was subject to a word limit, so that no

deeper investigation was possible.


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Question:

Were the 1992 and 1993 financial results for Euro Disney an indication that principal factors in the

planning process were wrong?

1 Introduction Euro Disney s Plans and Reality

When the International Offer of Shares for the Euro Disneyland S.C.A. (in the following called Euro

Disney) was published in October 1989 the plans for this new enterprise of the Walt Disney groupwere

ambiguous. The financial plans for the first year of operation projected total revenues of FF 5,482million

and a net profit after taxation of FF 204 million. For the following years the development should beeven

more impressive. At that time the plans were seen as a consequent application of the concepts of the

existing Disney-designed theme parks.[1]

Just a short time after Euro Disney was opened in time on April 1992 it was obvious that realitywould

not meet the plans. In November 1992 the financial reports for the year ended 30 September 1992were

published which included the first 172 opening days of Disneyland Paris. There the management hadto

announce a loss of FF 188 million. The second year was even worse. Although Euro Disney nearlymet

plans for guest attendance, they faced a loss of FF 5,337 million whereas total turnover was FF 5,725

million. Plans for the second year of operation (1 April 1993 to 31 March 1994) forecasted a turnoverof FF

6,801 Mio and a profit of FF 359 Mio.


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The scope of this assignment is to find out if these financial results were an indication that principalfactors

in the planning process were wrong. For this the author will compare the plans and actual results forEuro

Disney s first two years, analyse major premises Disney set when planning for Euro Disney andanalyse the

steps of the planning process. The base for this analysis will be mainly the profit and loss accounts.

2

Theory of the Planning Process

Normally there are several ways to reach an organisations goal. To determine the way to this goalwhich

is for most organisations except non-profit ones the maximisation of profit, a plan is needed.Planning

means to decide for one of the possible ways given.

The process of planning takes three steps:

1. Collection of information

2. Development of several alternative plans

3. Decision for one of these plans

In the first step it is important to gather as much information as possible to provide the best basis to

decide for the plan that promises best results. Because of the future nature of planning there willnot be


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complete information. This requires some estimations. Therefore all plans include more or lesselements of

uncertainty and risk.[2] Since planning is essentially about the future, the results and informationfrom the

past usually are only relevant as the basis from which to forecast.

On the basis of the information available and the projections of possible future developments it ispossible

to retrieve alternative plans for different scenarios. In spite of the uncertainty of the future, planningoffers

the means to evaluate alternative proposals. This should reduce uncertainty and risk.[3]

Planning is involved in various kinds of decisions, but especially important for major decisionsconcerning

the overall future strategy and large investments. Such issues are very risky since they require a high

spending of capital and have an long-term influence on the future development of the organisation.One

example is the foundation and setting-up of a new company.

3

Comparison of Euro Disney s Plans and actual Results

A direct comparison between the plans for Euro Disney as given in the Offer of Shares and theresults

presented in the financial reports is not possible for the following reasons:

The Offer of Shares refers to a complete year after the opening of the park, that

means from April 1st to March 30th of the following year. The financial reports refer to

the financial year beginning October 1st and ending September 30th of the following


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year.

The details given in the Offer of Shares and in the financial reports refer to

different positions of the profit and loss accounts. Therefore it is not possible to

compare the composition of the positions and analyse reasons for differences.

For this reasons all conclusions given below should be evaluated carefully. For a more detailedanalysis

additional information would be necessary[4].

To be able to make a general statement this report will compare the plans for the first and secondyear of

operation with the financial years ending September 30th 1992 and 1993. At least the last one willprovide

the opportunity to compare two periods of twelve months of operation. This comparison is providedin

appendices 1 to 3. With a stress on the second year as explained above the following conclusionscan be

drawn:

In the first year Euro Disney nearly met expectations for revenues and operating

expenses of the Magic Kingdom. With no operating profit from the resort and

property development sector and higher than planned general and administrative

costs it failed to meet the profit projection by FF 392 Mio.

In the second year again revenues from the Magic Kingdom reached the planned

level but operating expenses for this exceeded plans so that the operating profit was

below expectations.


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Again there was no significant operating profit from the resort and property

development operations.

Lease, general and administrative expenses far exceeded plans.

As a result the profit before exceptional profit and taxation missed plans by FF

2,332 Mio.

A more detailed analysis is given in appendix 4.

Although the comparisons are influenced by some differences in the timely periods which mightdecrease

their reliability they allow the general conclusion that Euro Disney by far missed its plans. Thecompany

faced threatening losses instead of immediate profits.

4 Critical Analysis of the planning Premises and the planning

Process for Euro Disney

4.1

A detailed overview of Disney s planning premises for its European theme park as it can be retrievedfrom

the Offer of Shares is given in appendix 5. From this it can be seen that the main ideas and principleswere

the following:


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The planned Euro Disney theme park was seen as such a unique project that it

would be a monopolist; revenues were planned remarkably above the market level.

Plans were based on Disney s experiences with the existing theme parks.

Disney drew conclusions from the successful development of Disneyland Tokyo

which was seen as a prove that the strictly American philosophy of Disney could be

implemented without major change in other cultural environments.

Disney had two externals Arthur D Little (in the following: ADS) and Petiteau

Scacchi, the French member firm of its auditor Price Waterholes - examine its plans

and the underlying premises.

Besides this the plans for Euro Disney were driven by the wish to avoid the limitations for profitgeneration

faced in other theme parks. These were the facts that Disney owed only a small number of thehotels

around its existing theme parks[5] and that it did not own and operate the Japanese theme park byitself thus

only receiving pre-defined royalties. The author assumes that the latter one originally was organisedthat

way to limit the risk of a high investment in a so far new cultural environment.

4.2

The following analysis of Disney s planning process and premises for the European theme park takes

assumptions for Disney s activities concerning the three planning steps. This is done with the help of


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examples. Not all issues connected with the original plans are covered.

In general the last three of the above principles used by Disney to give the plans more reliability areall

reasonable and necessary.

For the first planning step the collection of information - a company has to base its plans for a new

business in a new market-environment - amongst other information - on its experiences withexisting

activities. From the details given in the Offer of Shares it can be concluded that Disney did this quite

carefully. Moreover the frequent stress of the positive experiences with the American and Japanesetheme

parks indicates that Disney was a bit too impressed by its own success. It is also the authorsexperience

that companies which can refer to existing successfully performing businesses sometimes tend to beover-

optimistic for their newly planned activities.

A second important group of information that has to be gathered are facts about the environmentfor the

newly planned business (e.g. PESTLE-analysis). The offer of Shares indicates that Disney covered this

field as well but obviously at least not all socio-cultural and economical issues were cared forenough.

Summary of the planning premises for Euro Disney

Analysis of the planning Process

The second step the development of several alternative plans - requires an adjustment of theprevious


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experiences to the special situation for the new business. Because of the uncertainty involved thisshould

result in some different scenarios. These again result in different business plans. These alternativebusiness

plans include amongst others

Forecasts for the development of revenues, costs and cash flow and other

economical figures,

Options to include or exclude additional business activities like in Disney s case

the resort and property development.

The sensitivity analysis presented in the Offer of Shares is an indication that Disney followed thisstep in

its planning process. For the reason of assessment of plans under alternative future scenarios thissensitivity

analysis presented to the public does not offer enough information. Its main weakness is that in each

scenario only one factor is changed whereas all other factors remained stable. At least a

combination of the

factors which are most likely to change would have added more clarity.

There is no information available if Disney prepared a scenario with a high influence of cultural

differences. But the reality showed that at least in the third step decision for one plan Disney

underestimated the influence of cultural differences between America and Europe.[6] This had a

considerable influence on the actual deviation from the plans.

In addition, Disney decided for a plan in which the underlying scenario sees a Disney theme park as a

monopolist because of its quality and uniqueness. They did not take enough care for competitorsoffering


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different leisure and entertainment activities. This resulted in too high expectations of guestattendance

figures and acceptability of planned admission fees, prices for food and beverages and merchandise.

This assessment by Disney was supported by a report from ADL, stating that the assumptions for

guest

attendance and per capita spending were reasonable. On the other hand a report of Petiteau Scacchigave

a very cautious statement. It only said that the plans were consistent with the accounting policies,were

correctly calculated and correctly compiled on the base of the assumptions. Since the auditors gaveno

statement that the planning premises were reasonable this should have been taken as a serious

indication

that there were some problems. In fact the theme park had to compete with other touristattractions and

theme parks around Europe. Thus there is no monopolistic position for Euro Disney but anoligopolistic

one.[7]

As for the resort and property development business - which was an essential part of the plans forEuro

Disney the management decided for a scenario that assumes a stable property market in Francefor the

years to come. This was based on an analysis by ADS, concluding a high influence of the Disneytheme

park on the property market of the local area. Despite this study the scenario seems to be optimisticsince

obviously no care was taken for a possible decrease or breakdown in the property market. It wouldhave

been more cautious to plan for a lower level of revenues and profits from resort and propertydevelopment

and leave the expected higher level as chance for higher-than-planned profits.


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5

Summary

Euro Disney s financial results of the years 1992 and 1993 by far missed the plans given in the Offerof

shares.

This plans were mainly based on Disney s experiences with its existing and successfully performingtheme

parks.

Although the planning process seems to have been carefully conducted and backed by analysis of external

experts some significant failures occurred. From the financial results of the first two years of operation and

from analysts comments on the actual development one can see that the problems resultedamongst other

factors from the following general reasons:

wrong assessment of the market situation,

overall economical development,


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development of property market,

guest awareness of high prices,

cultural problems.

Even though not all developments could have been predicted correctly at the time the plans were

established, the above factors were not taken care for in the necessary extent in the planningconcept. In

this sense Disney decided for a too optimistic scenario.

-------------------

Bibliography

Euro Disneyland S.C.A: International Offer of Shares

Annual report 1992

Annual report 1993

Whe, G (1986), Einfhrung in die allgemeine Betriebswirtschaftslehre (Introduction

in general business economics), Munich: Verlag Vahlen


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Mills, R. W., Robertson, J. (1999), Fundamentals of managerial accounting and finance, Leclade: Mars

Business Associates Ltd

Reekie, W. D., Allen, D. E., Crook, J. N. (1991),The economics of modern business, Oxford: Blackwell

Publishers

-----------------------

[1] Concerning Disney-enterprises in this report uses the same abbreviations that are

used as in the International offer of Shares.

[2] Whe (1986) page 125, 126

[3] Mills, Robertson (1993) page 170

[4] The information needed for an exact comparison can only be obtained with access

to the companies not published accounts.

[5] Disney owns 5,700 of the 70,000 hotel rooms around Walt Disney World, Orlando

and 1,000 of the 20,000 rooms around Disneyland California.

[6] The author sees the main cultural differences in the service mentality of staff and

in the expectations of guests. Whereas Europeans visiting a Disney theme park in


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the USA expected a real American experience they felt over-americanised when

visiting the same type of park in Europe.

[7] A detailed analysis of the market structure is given in appendix 6.

Launched in 1999, Europe s single currency is now shared by 16 EU countries and

around 329 million citizens, making it one of the world s most important currencies and

one of the EU s greatest achievements

The euro (sign: ; code: EUR; plural: euros) is the official currency of the eurozone:

16 of the 27 Member States of the European Union (EU). It is also the currency used

by the EU institutions. The eurozone consists of Austria, Belgium, Cyprus, Finland,

France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,

Slovakia, Slovenia and Spain.[2] Estonia is due to join the eurozone on 1 January 2011.[3]

The currency is also used in a further five European countries, with and without formal

agreements, and is consequently used daily by some 327 million Europeans.[4] Over

175 million people worldwide use currencies which are pegged to the euro, including

more than 150 million people in Africa.

The euro is the second largest reserve currency (a status it inherited from the German

mark) as well as the second most traded currency in the world after the U.S. dollar.[5]


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[6] As of June 2010[update], with more than 800 billion in circulation, the euro is the

currency with the highest combined value of banknotes and coins in circulation in the

world, having surpassed the U.S. dollar.[note 15] Based on IMF estimates of 2008 GDP and

purchasing power parity among the various currencies, the eurozone is the second largest

economy in the world.[7]

The name euro was officially adopted on 16 December 1995.[8] The euro was introduced

to world financial markets as an accounting currency on 1 January 1999, replacing

the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes

entered circulation on 1 January 2002.

Administration

The euro is managed and administered by the Frankfurt-based European Central Bank

(ECB) and the Eurosystem (composed of the central banks of the eurozone countries).

As an independent central bank, the ECB has sole authority to set monetary policy. The

Eurosystem participates in the printing, minting and distribution of notes and coins in all

Member States, and the operation of the eurozone payment systems.

The 1992 Maastricht Treaty obliges most EU Member States to adopt the euro upon

meeting certain monetary and budgetary requirements, although not all states have done

so. The United Kingdom and Denmark negotiated exemptions,[9] while Sweden turned

down the euro in a 2003 referendum, and has circumvented the obligation to adopt the

euro by not meeting the monetary and budgetary requirements. All nations that have

joined the EU since 1993 have pledged to adopt the euro in due course.

Characteristics


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The euro is divided into 100 cents (sometimes referred to as euro-cents, especially

when distinguishing them from other currencies). In Community legislative acts the

plural forms of euro and cent are spelled without the s, notwithstanding normal English

usage.[10][11] Otherwise, normal English plurals are recommended and used;[12] with many

local variations such as 'centime' in France.

All circulating coins have a common side showing the denomination or value, and a map

in the background. For the denominations except the 1-, 2- and 5-cent coins that map

only showed the 15 Member States which were members when the euro was introduced.

Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a

map of Europe also showing countries outside the Union like Norway. The 1-, 2- and 5-

cent coins, however, keep their old design, showing a geographical map of Europe with

the 15 Member States of 2002 raised somewhat above the rest of the map. All common

sides were designed by Luc Luycx. The coins also have a national side showing an image

specifically chosen by the country that issued the coin. Euro coins from any Member

State may be freely used in any nation which has adopted the euro.

The coins are issued in 2, 1, 50c, 20c, 10c, 5c, 2c, and 1c denominations. In order to

avoid the use of the two smallest coins, some cash transactions are rounded to the nearest

five cents in the Netherlands (by voluntary agreement) and in Finland (by law).[13] This

practice is discouraged by the Commission, as is the habit of certain shops to refuse to

accept high value euro notes.[14]

Commemorative coins with 2 face value have been issued with changes to the design

of the national side of the coin. These include both commonly issued coins, such as

the 2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of


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Rome, and nationally issued coins, such as the coin to commemorate the 2004 Summer

Olympics issued by Greece. These coins are legal tender throughout the eurozone.

Collector's coins with various other denominations have been issued as well, but these are

not intended for general circulation, and they are legal tender only in the Member State

that issued them.[15]

The design for the euro banknotes have common designs on both sides. The design was

created by the Austrian designer Robert Kalina.[16] Notes are issued in 500, 200, 100,

50, 20, 10, 5. Each banknote has its own colour and is dedicated to an artistic period

of European architecture. The front of the note features windows or gateways while

the back has bridges. While the designs are supposed to bedevoid of any identifiable

characteristics, the initial designs by Robert Kalina were of specific bridges, including

the Rialto and the Pont de Neuilly, and were subsequently rendered more generic; the

final designs still bear very close similarities to their specific prototypes; thus they are not

truly generic.[17] Some of the highest denominations such as the 500 are not issued in all

countries, though they remain legal tender throughout the eurozone.

[edit] Payments clearing, electronic funds transfer

Main article: Single Euro Payments Area

Capital within the EU may be transferred in any amount from one country to another.

All intra-EU transfers in euro are considered as domestic payments and bear the

corresponding domestic transfer costs.[18] This includes all Member States of the EU,

even those outside the eurozone providing the transactions are carried out in euro.[19]

Credit/debit card charging and ATM withdrawals within the eurozone are also charged as


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domestic, however paper-based payment orders, like cheques, have not been standardised

so these are still domestic-based. The ECB has also set up a clearing system, TARGET,

for large euro transactions.[20]

Currency sign

The euro sign; logotype and handwritten.

Main article: Euro sign

A special euro currency sign ( ) was designed after a public survey had narrowed the

original ten proposals down to two. The European Commission then chose the design

created by the Belgian Alain Billiet. The official story of the design history of the euro

sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC,

who claims to have created it as a generic symbol of Europe.[21]

Inspiration for the symbol itself came from the Greek epsilon ( )[note 16] a reference

to the cradle of European civilisation and the first letter of the word Europe, crossed by

two parallel lines to certify the stability of the euro.

European Commission[10]

The European Commission also specified a euro logo with exact proportions and

foreground/background colour tones.[22] While the Commission intended the logo to

be a prescribed glyph shape, font designers made it clear that they intended to design

their own variants instead.[23] Typewriters lacking the euro sign can create it by typing

a capital 'C', backspacing and overstriking it with the equal ('=') sign. Placement of the

currency sign relative to the numeric amount varies from nation to nation, but for texts in

English the symbol (and the ISO-standard "EUR") should precede the amount.[24]


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one euro. The European Currency Unit was an accounting unit used by the EU, based on

the currencies of the Member States; it was not a currency in its own right. They could

not be set earlier, because the ECU depended on the closing exchange rate of the non-

euro currencies (principally the pound sterling) that day.

The procedure used to fix the irrevocable conversion rate between the drachma and

the euro was different, since the euro by then was already two years old. While the

conversion rates for the initial eleven currencies were determined only hours before the

euro was introduced, the conversion rate for the Greek drachma was fixed several months

beforehand.[28]

The currency was introduced in non-physical form (traveller's cheques, electronic

transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of

participating countries (the eurozone) ceased to exist independently. Their exchange rates

were locked at fixed rates against each other, effectively making them mere non-decimal

subdivisions of the euro. The euro thus became the successor to the European Currency

Unit (ECU). The notes and coins for the old currencies, however, continued to be used as

legal tender until new euro notes and coins were introduced on 1 January 2002.

The changeover period during which the former currencies' notes and coins were

exchanged for those of the euro lasted about two months, until 28 February 2002. The

official date on which the national currencies ceased to be legal tender varied from

Member State to Member State. The earliest date was in Germany, where the mark

officially ceased to be legal tender on 31 December 2001, though the exchange period

lasted for two months more. Even after the old currencies ceased to be legal tender, they

continued to be accepted by national central banks for periods ranging from several

years to forever (the latter in Austria, Germany, Ireland and Spain). The earliest coins to


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become non-convertible were the Portuguese escudos, which ceased to have monetary

value after 31 December 2002, although banknotes remain exchangeable until 2022.

Direct and indirect usage

Direct usage

The euro is the sole currency of 16 EU Member States: Austria, Belgium, Cyprus,

Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta,

the Netherlands, Portugal, Slovakia, Slovenia and Spain. These countries comprise

the "eurozone", some 326 million people in total. Estonia will join in 2011.[29]

With all but two of the remaining EU members obliged to join, together with future

members of the EU, the enlargement of the eurozone is set to continue further. Outside

the EU, the euro is also the sole currency of Montenegro and Kosovo and several

European micro states (Andorra, Monaco, San Marino and Vatican City) as well as in

three overseas territories of EU states that are not themselves part of the EU (Mayotte,

Saint Pierre and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the

euro outside the EU affects over 3 million people.

It is also gaining increasing international usage as a trading currency, in Cuba,[30] North

Korea and Syria.[31] There are also various currencies pegged to the euro (see below).

In 2009 Zimbabwe abandoned its local currency and used major currencies instead,

including the euro and the United States dollar.[32]

[edit] Use as reserve currency


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Since its introduction, the euro has been the second most widely held international

reserve currency after the U.S. dollar. The share of the euro as a reserve currency has

increased from 17.9% in 1999 to 26.5% in 2008, at the expense of the U.S. dollar (its

share fell from 70.9% to 64.0% in the same timeframe) and the Yen (it fell from 6.4%

to 3.3%). The euro inherited and built on the status of the second most important reserve

currency from the German mark. The euro remains underweight as a reserve currency in

advanced economies while overweight in emerging and developing economies: according

to the IMF[33] the total of euros held as a reserve in the world at the end of 2008 was

equal to USD 1.1 trillion, with a share of 22% of all currency reserves in advanced

economies, but a total of 31% of all currency reserves in emerging and developing

economies.

The possibility of the euro becoming the first international reserve currency is now

widely debated among economists.[34] Former Federal Reserve Chairman Alan Greenspan

gave his opinion in September 2007 that it is "absolutely conceivable that the euro will

replace the dollar as reserve currency, or will be traded as an equally important reserve

currency."[35] In contrast to Greenspan's 2007 assessment the euro's increase in the share

of the worldwide currency reserve basket has slowed considerably since the year 2007

and since the beginning of the worldwide credit crunch related recession and sovereign

debt crisis.[33

Currencies pegged to the euro

Outside the eurozone, a total of 23 countries and territories that do not belong to the EU

have currencies that are directly pegged to the euro including 14 countries in mainland

Africa (CFA franc and Moroccan dirham), two African island countries (Comorian franc


34/87

and Cape Verdean escudo), three French Pacific territories (CFP franc) and another

Balkan country, Bosnia and Herzegovina (Bosnia and Herzegovina convertible mark).

On 28 July 2009, So Tom and Prncipe signed an agreement with Portugal which will

eventually tie its currency to the euro.[36]

With the exception of Bosnia (which pegged its currency against the German mark) and

Cape Verde (formerly pegged to the Portuguese escudo) all of these non-EU countries

had a currency peg to the French Franc before pegging their currencies to the euro.

Pegging a country's currency to a major currency is regarded as a safety measure,

especially for currencies of areas with weak economies, as the euro is seen as a stable

currency, prevents runaway inflation and encourages foreign investment due to its

stability.

Within the EU several currencies have a peg to the euro, in most instances as a

precondition to joining the eurozone. The Bulgarian Lev and the Estonian kroon were

formerly pegged to the German mark, other EU memberstates have a direct peg due to

ERM II: the Danish krone, the Lithuanian litas and the Latvian lats.

In total, over 150 million people in Africa use a currency pegged to the euro, 25 million

people outside the eurozone in Europe and another 500,000 people on Pacific islands.

From Wikipedia, the free encyclopedia

Jump to: navigation, search

This article is about the currency. For other uses, see Euro (disambiguation).

"EUR" redirects here. For other uses, see EUR (disambiguation).


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Euro

(Greek)

(Bulgarian)

Banknotes

ISO 4217 Code

Coins

EUR (num. 978)

Official user(s)

Unofficial user(s)

Inflation

Eurozone (16)[show]

Austria

Belgium


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Cyprus[note 5]

Finland

France[note 6]

Germany

Greece

Ireland

Italy[note 7]

Luxembourg

Malta

Netherlands[note 8]

Portugal

Slovakia

Slovenia

Spain


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3 states with issuing rights[show]

Monaco[note 9]

San Marino[note 10]

Vatican City[note 11]

5 territories outside the EU[show]

Akrotiri and Dhekelia (UK)[note 12]

Clipperton (France)

French Southern and Antarctic

Lands (France)

Mayotte (France)[note 13]

Saint Pierre and Miquelon (France)

[note 14]

4 other users[show]


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Andorra[note 1]

Kosovo[note 2]

Montenegro[note 3]

Zimbabwe[note 4]

1.5%, March 2010

Method

Pegged by

Symbol

Nickname

HICP

11 currencies[show]

Bosnia & Herz. convertible mark

Bulgarian lev

Cape Verdean escudo


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Central African CFA franc

CFP franc

Comorian franc

Danish krone (2.25%)

Estonian kroon

Latvian lats

Lithuanian litas

West African CFA franc

The single currency[1]

local names[show]

Ege (Finnish)

Eumeln (German)


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Knaak (Dutch)

Quid (Irish English)

Teuro (German)

Jur (Hungarian)

See Euro linguistic issues

Plural

Coins

Freq. used

Rarely used

Banknotes

Freq. used

Rarely used

Central bank

Website


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5c, 10c, 50c, 1, 2

1c, 2c (Netherlands and Finland only)

5, 10, 20, 50

100, 200, 500

European Central Bank

www.ecb.europa.eu

Printer

Website

Several, click to

[show]

Istituto Poligrafico e Zecca dello Stato

Banco de Portugal

Bank of Greece


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Banque de France

Bundesdruckerei

Central Bank and Financial Services

Authority of Ireland

De La Rue

Fbrica Nacional de Moneda y Timbre

Franois-Charles Oberthur

Giesecke & Devrient

Royal Joh. Ensched

National Bank of Belgium

Oesterreichische Banknoten- und

Sicherheitsdruck GmbH

Setec Oy

Several, click to


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[show]


Banco de Portugal Imprensa

Nacional / Casa da Moeda

Bank of Greece

Banque de France

Bundesdruckerei

Central Bank and Financial Services

Authority of Ireland

De La Rue


Franois-Charles Oberthur

Giesecke & Devrient


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Royal Joh. Ensched

National Bank of Belgium

Oesterreichische Banknoten- und

Mint

Website

Sicherheitsdruck GmbH

Setec Oy

Several, click to

[show]

Bayerisches Hauptmnzamt, Munich

(Mint mark: D)

Currency Centre


Hamburgische Mnze (J)


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Imprensa Nacional - Casa da Moeda

SA


Koninklijke Nederlandse Munt

Koninklijke Munt van Belgi/Monnaie

Royale de Belgique

Mincov a Kremnica

Monnaie de Paris

Mnze sterreich

Rahapaja Oy/Myntverket i Finland Ab

Staatliche Mnze Berlin (A)

Staatliche Mnze Karlsruhe (G)

Staatliche Mnze Stuttgart (F)


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Several, click to

[show]

Munich mint

Currency Centre


Hamburg mint

Imprensa Nacional - Casa da Moeda

SA


Koninklijke Nederlandse Munt

Koninklijke Munt van Belgi/Monnaie

Royale de Belgique

Monnaie de Paris

Mnze sterreich


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the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes

entered circulation on 1 January 2002.

Contents

[hide]

1 Administration

2 Characteristics

o

2.1 Coins and banknotes

o

2.2 Payments clearing, electronic funds transfer

o

2.3 Currency sign


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3 Introduction of the euro

4 Direct and indirect usage

o

o

o

5 Economics

4.1 Direct usage

4.2 Use as reserve currency

4.3 Currencies pegged to the euro

o

o


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o

o

o

5.1 Optimal currency area

5.2 Transaction costs and risks

5.3 Price parity

5.4 Macroeconomic stability

5.5 Evidence on the effect of the introduction of the euro

5.5.1 Trade

5.5.2 Investment


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5.5.3 Inflation

5.5.4 Exchange rate risk

5.5.5 Financial integration

5.5.6 Effect on interest rates

5.5.7 Price convergence

5.5.8 Tourism

6 Exchange rates

o


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o

7 Linguistic issues

6.1 Flexible exchange rates

6.2 Against other major currencies

8 Notes

9 References

10 Further reading

11 External links


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o

11.1 Official websites

11.2 Other

[edit]o Administration

Main articles: European Central Bank, Maastricht Treaty, and Euro Group

The ECB in Frankfurt, Germany, is in charge of the eurozone's monetary policy

The euro is managed and administered by the Frankfurt-based European Central Bank

(ECB) and the Eurosystem (composed of the central banks of the eurozone countries).

As an independent central bank, the ECB has sole authority to set monetary policy. The

Eurosystem participates in the printing, minting and distribution of notes and coins in all

Member States, and the operation of the eurozone payment systems.

The 1992 Maastricht Treaty obliges most EU Member States to adopt the euro upon

meeting certain monetary and budgetary requirements, although not all states have done

so. The United Kingdom and Denmark negotiated exemptions,[9] while Sweden turned

down the euro in a 2003 referendum, and has circumvented the obligation to adopt the

euro by not meeting the monetary and budgetary requirements. All nations that have

joined the EU since 1993 have pledged to adopt the euro in due course.

[edit] Characteristics

[edit] Coins and banknotes


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All euro coins have a common side, and a national side chosen by the issuing bank.

Main articles: euro coins and euro banknotes

The euro is divided into 100 cents (sometimes referred to as euro-cents, especially

when distinguishing them from other currencies). In Community legislative acts the

plural forms of euro and cent are spelled without the s, notwithstanding normal English

usage.[10][11] Otherwise, normal English plurals are recommended and used;[12] with many

local variations such as 'centime' in France.

All circulating coins have a common side showing the denomination or value, and a map

in the background. For the denominations except the 1-, 2- and 5-cent coins that map

only showed the 15 Member States which were members when the euro was introduced.

Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a

map of Europe also showing countries outside the Union like Norway. The 1-, 2- and 5-

cent coins, however, keep their old design, showing a geographical map of Europe with

the 15 Member States of 2002 raised somewhat above the rest of the map. All common

sides were designed by Luc Luycx. The coins also have a national side showing an image

specifically chosen by the country that issued the coin. Euro coins from any Member

State may be freely used in any nation which has adopted the euro.

The common (top) and national sides of the 2 coin

The coins are issued in 2, 1, 50c, 20c, 10c, 5c, 2c, and 1c denominations. In order to

avoid the use of the two smallest coins, some cash transactions are rounded to the nearest

five cents in the Netherlands (by voluntary agreement) and in Finland (by law).[13] This

practice is discouraged by the Commission, as is the habit of certain shops to refuse to


55/87

accept high value euro notes.[14]

Commemorative coins with 2 face value have been issued with changes to the design

of the national side of the coin. These include both commonly issued coins, such as

the 2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of

Rome, and nationally issued coins, such as the coin to commemorate the 2004 Summer

Olympics issued by Greece. These coins are legal tender throughout the eurozone.

Collector's coins with various other denominations have been issued as well, but these are

not intended for general circulation, and they are legal tender only in the Member State

that issued them.[15]

The design for the euro banknotes have common designs on both sides. The design was

created by the Austrian designer Robert Kalina.[16] Notes are issued in 500, 200, 100,

50, 20, 10, 5. Each banknote has its own colour and is dedicated to an artistic period

of European architecture. The front of the note features windows or gateways while

the back has bridges. While the designs are supposed to be devoid of any identifiable

characteristics, the initial designs by Robert Kalina were of specific bridges, including

the Rialto and the Pont de Neuilly, and were subsequently rendered more generic; the

final designs still bear very close similarities to their specific prototypes; thus they are not

truly generic.[17] Some of the highest denominations such as the 500 are not issued in all

countries, though they remain legal tender throughout the eurozone.

[edit] Payments clearing, electronic funds transfer

Main article: Single Euro Payments Area


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Capital within the EU may be transferred in any amount from one country to another.

All intra-EU transfers in euro are considered as domestic payments and bear the

corresponding domestic transfer costs.[18] This includes all Member States of the EU,

even those outside the eurozone providing the transactions are carried out in euro.[19]

Credit/debit card charging and ATM withdrawals within the eurozone are also charged as

domestic, however paper-based payment orders, like cheques, have not been standardised

so these are still domestic-based. The ECB has also set up a clearing system, TARGET,

for large euro transactions.[20]

[edit] Currency sign

The euro sign; logotype and handwritten.

Main article: Euro sign

A special euro currency sign ( ) was designed after a public survey had narrowed the

original ten proposals down to two. The European Commission then chose the design

created by the Belgian Alain Billiet. The official story of the design history of the euro

sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC,

who claims to have created it as a generic symbol of Europe.[21]

Inspiration for the symbol itself came from the Greek epsilon ( )[note 16] a reference

to the cradle of European civilisation and the first letter of the word Europe, crossed by

two parallel lines to certify the stability of the euro.

European Commission[10]

The European Commission also specified a euro logo with exact proportions and

foreground/background colour tones.[22] While the Commission intended the logo to


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be a prescribed glyph shape, font designers made it clear that they intended to design

their own variants instead.[23] Typewriters lacking the euro sign can create it by typing

a capital 'C', backspacing and overstriking it with the equal ('=') sign. Placement of the

currency sign relative to the numeric amount varies from nation to nation, but for texts in

English the symbol (and the ISO-standard "EUR") should precede the amount.[24]

[edit] Introduction of the euro

Main article: History of the euro

Preceding national currencies of the Eurozone

Currency

v d e

Yielded

Austrian schilling

Code

Rate

&000000

0000000

0137603

0013.760


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3

ATS

Fixed on

01998-12-31 31

December 1998

2002

Belgian franc

&000000

0000000

0403399

0040.339

9

BEF

01998-12-31 31

December 1998

2002

Dutch guilder


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&000000

0000000

0022037

102.2037

1

NLG

01998-12-31 31

December 1998

2002

Finnish markka

&000000

0000000

0059457

305.9457

3

FIM

01998-12-31 31

December 1998


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2002

French franc

&000000

0000000

0065595

696.5595

7

FRF

01998-12-31 31

December 1998

2002

German mark

&000000

0000000

0019558

301.9558

3

DEM


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01998-12-31 31

December 1998

2002

Irish pound

&000000

0000000

0007875

640.7875

64

IEP

01998-12-31 31

December 1998

2002

Italian lira

Luxembourgian franc

&Expr

ession

error:


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Unreco

gnised

ITL

punct

uation

characte

r ","1,93

6.27

&000000

0000000

0403399

0040.339

9

LUF

01998-12-31 31

December 1998

2002

01998-12-31 31

December 1998

2002


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Monegasque franc

&000000

0000000

0065595

696.5595

7

MCF

01998-12-31 31

December 1998

2002

Portuguese escudo

&000000

0000000

2004819

99200.48

2

PTE

01998-12-31 31

December 1998


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2002

Sammarinese lira

&Expr

ession

error:

Unreco

gnised

SML

punct

uation

characte

r ","1,93

6.27

&000000

0000000

1663859

99166.38

6

ESP

01998-12-31 31

December 1998


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2002

Spanish peseta

01998-12-31 31

December 1998

2002

Vatican lira

&Expr

ession

error:

Unreco

gnised

VAL

punct

uation

characte

r ","1,93

6.27

&000000

0000000

3407500


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00340.75

GRD

01998-12-31 31

December 1998

2002

Greek drachma

02000-06-19 19

June 2000

2002

Slovenian tolar

&000000

0000000

2396399

99239.64

SIT

02006-07-11 11

July 2006


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2007

Cypriot pound

&000000

0000000

0005852

740.5852

74

CYP

02007-07-10 10

July 2007

2008

Maltese lira

&000000

0000000

0004293

000.4293

MTL


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02007-07-10 10

July 2007

2008

Slovak koruna

&000000

0000000 02008-07-08 8 July

0301260

2008

0030.126

SKK

2009

The euro was established by the provisions in the 1992 Maastricht Treaty. To participate

in the currency, Member States are meant to meet strict criteria, such as a budget deficit

of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP,

low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the

United Kingdom and Denmark were granted exemptions per their request from moving to

the stage of monetary union which would result in the introduction of the euro.

Economists who helped create or contributed to the euro include Fred Arditti, Neil

Dowling, Wim Duisenberg, Robert Mundell, Tommaso Padoa-Schioppa and Robert

Tollison.[citation needed] (For macro-economic theory, see below.) The name euro was


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devised on 4 August 1995 by Germain Pirlot, a Belgian Esperantist and ex-teacher of

French and history,[25] and officially adopted in Madrid on 16 December 1995.[8][26][citation

needed]

Due to differences in national conventions for rounding and significant digits, all

conversion between the national currencies had to be carried out using the process of

triangulation via the euro. The definitive values in euro of these subdivisions (which

represent the exchange rates at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union,[27] based on a

recommendation from the European Commission based on the marketrates on 31

December 1998. They were set so that one European Currency Unit (ECU) would equal

one euro. The European Currency Unit was an accounting unit used by the EU, based on

the currencies of the Member States; it was not a currency in its own right. They could

not be set earlier, because the ECU depended on the closing exchange rate of the non-

euro currencies (principally the pound sterling) that day.

The procedure used to fix the irrevocable conversion rate between the drachma and

the euro was different, since the euro by then was already two years old. While the

conversion rates for the initial eleven currencies were determined only hours before the

euro was introduced, the conversion rate for the Greek drachma was fixed several months

beforehand.[28]

The currency was introduced in non-physical form (traveller's cheques, electronic

transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of

participating countries (the eurozone) ceased to exist independently. Their exchange rates


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were locked at fixed rates against each other, effectively making them mere non-decimal

subdivisions of the euro. The euro thus became the successor to the European Currency

Unit (ECU). The notes and coins for the old currencies, however, continued to be used as

legal tender until new euro notes and coins were introduced on 1 January 2002.

The changeover period during which the former currencies' notes and coins were

exchanged for those of the euro lasted about two months, until 28 February 2002. The

official date on which the national currencies ceased to be legal tender varied from

Member State to Member State. The earliest date was in Germany, where the mark

officially ceased to be legal tender on 31 December 2001, though the exchange period

lasted for two months more. Even after the old currencies ceased to be legal tender, they

continued to be accepted by national central banks for periods ranging from several

years to forever (the latter in Austria, Germany, Ireland and Spain). The earliest coins to

become non-convertible were the Portuguese escudos, which ceased to have monetary

value after 31 December 2002, although banknotes remain exchangeable until 2022.

[edit] Direct and indirect usage

Further information: Eurozone, International status and usage of the

euro, and Enlargement of the eurozone

Andorra

Bulgaria

CzechRep.

Denmark

EUROZONE


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Estonia

Hungary

Kosovo

Latvia

Lithuania

Monaco

Monten.

Poland

Romania

San Marino

Sweden

UnitedKingdom

Vatican

A&D

Eurozone

ERM II members

unilaterally adopted

other EU members

special adoption agreement

via treaty

[edit] Direct usage

The euro is the sole currency of 16 EU Member States: Austria, Belgium, Cyprus,

Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta,


72/87

the Netherlands, Portugal, Slovakia, Slovenia and Spain. These countries comprise

the "eurozone", some 326 million people in total. Estonia will join in 2011.[29]

With all but two of the remaining EU members obliged to join, together with future

members of the EU, the enlargement of the eurozone is set to continue further. Outside

the EU, the euro is also the sole currency of Montenegro and Kosovo and several

European micro states (Andorra, Monaco, San Marino and Vatican City) as well as in

three overseas territories of EU states that are not themselves part of the EU (Mayotte,

Saint Pierre and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the

euro outside the EU affects over 3 million people.

It is also gaining increasing international usage as a trading currency, in Cuba,[30] North

Korea and Syria.[31] There are also various currencies pegged to the euro (see below).

In 2009 Zimbabwe abandoned its local currency and used major currencies instead,

including the euro and the United States dollar.[32]

[edit] Use as reserve currency

Since its introduction, the euro has been the second most widely held international

reserve currency after the U.S. dollar. The share of the euro as a reserve currency has

increased from 17.9% in 1999 to 26.5% in 2008, at the expense of the U.S. dollar (its

share fell from 70.9% to 64.0% in the same timeframe) and the Yen (it fell from 6.4%

to 3.3%). The euro inherited and built on the status of the second most important reserve

currency from the German mark. The euro remains underweight as a reserve currency in

advanced economies while overweight in emerging and developing economies: according

to the IMF[33] the total of euros held as a reserve in the world at the end of 2008 was

equal to USD 1.1 trillion, with a share of 22% of all currency reserves in advanced


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economies, but a total of 31% of all currency reserves in emerging and developing

economies.

The possibility of the euro becoming the first international reserve currency is now

widely debated among economists.[34] Former Federal Reserve Chairman Alan Greenspan

gave his opinion in September 2007 that it is "absolutely conceivable that the euro will

replace the dollar as reserve currency, or will be traded as an equally important reserve

currency."[35] In contrast to Greenspan's 2007 assessment the euro's increase in the share

of the worldwide currency reserve basket has slowed considerably since the year 2007

and since the beginning of the worldwide credit crunch related recession and sovereign

debt crisis.[33]

[edit] Currencies pegged to the euro

Eurozone

External adopters of the euro

Currencies pegged to the euro

Currencies pegged to the euro within narrow band

United

States

External adopters of the US dollar

Currencies pegged to the US dollar

Currencies

pegged to the US dollar within narrow band Note that the Belarusian ruble is pegged to the Euro,

Worldwide use of the euro and the U.S. dollar:


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Russian Ruble and U.S. Dollar in a currency basket.

Main article: Currencies related to the euro

Outside the eurozone, a total of 23 countries and territories that do not belong to the EU

have currencies that are directly pegged to the euro including 14 countries in mainland

Africa (CFA franc and Moroccan dirham), two African island countries (Comorian franc

and Cape Verdean escudo), three French Pacific territories (CFP franc) and another

Balkan country, Bosnia and Herzegovina (Bosnia and Herzegovina convertible mark).

On 28 July 2009, So Tom and Prncipe signed an agreement with Portugal which will

eventually tie its currency to the euro.[36]

With the exception of Bosnia (which pegged its currency against the German mark) and

Cape Verde (formerly pegged to the Portuguese escudo) all of these non-EU countries

had a currency peg to the French Franc before pegging their currencies to the euro.

Pegging a country's currency to a major currency is regarded as a safety measure,

especially for currencies of areas with weak economies, as the euro is seen as a stable

currency, prevents runaway inflation and encourages foreign investment due to its

stability.

Within the EU several currencies have a peg to the euro, in most instances as a

precondition to joining the eurozone. The Bulgarian Lev and the Estonian kroon were

formerly pegged to the German mark, other EU memberstates have a direct peg due to

ERM II: the Danish krone, the Lithuanian litas and the Latvian lats.

In total, over 150 million people in Africa use a currency pegged to the euro, 25 million


75/87

people outside the eurozone in Europe and another 500,000 people on Pacific islands.

[edit] Economics

Optimal currency area

Further information: Optimum currency area

In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical

region in which it would maximize economic efficiency to have the entire region share

a single currency. There are two models, both proposed by Robert A. Mundell: the

stationary expectations model and the international risk sharing model. Mundell himself

advocates the international risk sharing model and thus concludes in favour of the

euro.[37] However, even before the creation of the single currency, there were concerns

over diverging economies. Yet the chances of a state leaving the euro, or the chances that

the whole zone would collapse, are extremely slim.[38]

[edit] Transaction costs and risks

The most obvious benefit of adopting a single currency is to remove the cost of

exchanging currency, theoretically allowing businesses and individuals to consummate

previously unprofitable trades. For consumers, banks in the eurozone must charge the

same for intra-member cross-border transactions as purely domestic transactions for

electronic payments (e.g., credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also removes exchange rate risks. The risk of

unanticipated exchange rate movement has always added an additional risk or uncertainty


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for companies or individuals that invest or trade outside their own currency zones.

Companies that hedge against this risk will no longer need to shoulder this additional

cost. This is particularly important for countries whose currencies had traditionally

fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than

they were in the past. The reduction in cross-border transaction costs will allow larger

banking firms to provide a wider array of banking services that can compete across and

beyond the eurozone.

[edit] Price parity

Another effect of the common European currency is that differences in prices in

particular in price levels should decrease because of the 'law of one price'. Differences

in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely

to exploit the price differential. Therefore, prices on commonly traded goods are likely to

converge, causing inflation in some regions and deflation in others during the transition.

Some evidence of this has been observed in specific markets.[39]

[edit] Macroeconomic stability

Low levels of inflation are the hallmark of stable and modern economies. Because a high

level of inflation acts as a tax (seigniorage) and theoretically discourages investment, it

is generally viewed as undesirable. In spite of the downside, many countries have been

unable or unwilling to deal with serious inflationary pressures. Some countries have

successfully contained them by establishing largely independent central banks. One such

bank was the Bundesbank in Germany; as the European Central Bank is modelled on


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the Bundesbank,[40] it is independent of the pressures of national governments and has a

mandate to keep inflationary pressures low.[citation needed] Member countries that join the

bank commit to lower inflation, hoping to enjoy the macroeconomic stability associated

with low levels of expected inflation.[citation needed] The ECB (unlike the Federal Reserve

in the United States of America) does not have a second objective to sustain growth and

employment.[citation needed]

Many national and corporate bonds denominated in euro are significantly more liquid

and have lower interest rates than was historically the case when denominated in legacy

currencies.[citation needed] While increased liquidity may lower the nominal interest rate on

the bond, denominating the bond in a currency with low levels of inflation arguably plays

a much larger role. A credible commitment to low levels of inflation and a stable debt

reduces the risk that the value of the debt will be eroded by higher levels of inflation or

default in the future, allowing debt to be issued at a lower nominal interest rate.

[edit] Evidence on the effect of the introduction of the euro

In conformity with the economic predictions, empirical studies have found that the

introduction of the euro has had a positive impact on the movement of goods, financial

assets, and people within the eurozone. In addition, countries which previously had weak

currencies have benefited from lower interest rates and their firms now have easier access

to capital.

[edit] Trade

The consensus from the studies of the effect of the introduction of the euro is that it has


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increased trade within the eurozone by 5% to 10%.[41] On the lower bound, one study

suggested an increase of 3%.[42] A recent study estimates this effect to be between 9 and

14%.[43] Nevertheless, a recent meta-analysis of all available studies suggests that the

prevalence of positive estimates is caused by publication bias and that the underlying

effect may be negligible.[44]

[edit] Investment

Studies have found a positive effect of the introduction of the euro on investment.

Physical investment seems to have increased by 5% in the eurozone due to the

introduction.[45] Regarding foreign direct investment, a study found that the intra-

eurozone FDI stocks have increased by about 20% during the first four years of the

EMU.[46] Concerning the effect on corporate investment, there is evidence that the

introduction of the euro has resulted in an increase in investment rates and that it has

made it easier for firms to access financing in Europe. The euro has most specifically

stimulated investment in companies that come from countries that previously had weak

currencies. A study found that the introduction of the euro accounts for 22% of the

investment rate after 1998 in countries that previously had a weak currency.[47] The

effect is however less clear for firms coming from the strong currency countries; the

introduction has not been beneficial for most of them.

[edit] Inflation

The introduction of the euro has led to extensive discussion about its possible effect on

inflation. In the short term, there was a widespread impression in the population of the

eurozone that the introduction of the euro had led to an increase in prices. Paradoxically,

this impression has not been supported by general indices of inflation, showing no major


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effect of the introduction of the euro. A study of this paradox has found that it is due to an

asymmetric effect of the introduction of the euro on prices: while it had no effect on most

goods, it had an effect on cheap goods which have seen their price round up after the

introduction of the euro. The study found that consumers based their beliefs on inflation

of those cheap goods which are frequently purchased.[48] It has also been suggested that

the jump in small prices may be because prior to the introduction, retailers made fewer

upward adjustments and waited for the introduction of the euro to do so.[49]

[edit] Exchange rate risk

One of the advantages of the adoption of a common currency is the reduction of the

risk associated with changes in currency exchange rates. It has been found that the

introduction of the euro created "significant reductions in market risk exposures for

nonfinancial firms both in and outside of Europe".[50] These reductions in market

risk "were concentrated in firms domiciled in the eurozone and in non-Euro firms

with a high fraction of foreign sales or assets in Europe". These changes were

however "statistically and economically small".[citation needed]

[edit] Financial integration

The introduction of the euro seems to have had a strong effect on European financial

integration. According to a study on this question, it has "significantly reshaped the

European financial system, especially with respect to the securities markets [...] However,

the real and policy barriers to integration in the retail and corporate banking sectors

remain significant, even if the wholesale end of banking has been largely integrated."[51]

Specifically, the euro has significantly decreased the cost of trade in bonds, equity,


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and banking assets within the eurozone. [52] On a global level, there is evidence that

the introduction of the euro has led to an integration in terms of investment in bond

portfolios, with eurozone countries lending and borrowing more between each other than

with other countries.[53]

[edit] Effect on interest rates

The introduction of the euro has decreased the interest rates of most members countries,

in particular those with a weak currency. As a consequence the market value of firms

from countries which previously had a weak currency has very significantly increased.[54]

The countries whose interest rates fell most as a result of the euro are Greece, Ireland,

Portugal, Spain, and Italy.[55]

[edit] Price convergence

The evidence on the convergence of prices in the eurozone with the introduction of the

euro is mixed. Several studies failed to find any evidence of convergence following the

introduction of the euro after a phase of convergence in the early 1990s.[56][57] Other

studies have found evidence of price convergence,[58][59] in particular for cars.[60] A

possible reason for the divergence between the different studies is that the processes of

convergence may not have been linear, slowing down substantially between 2000 and

2003, and resurfacing after 2003 as suggested by a recent study (2009).[61]

[edit] Tourism

A study has found that the introduction of the euro has had a positive effect on tourism

flows within the EMU, with an increase of 6.5%.[


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Exchange rates

Exchange rates

See also: Exchange rate, Exchange rate regime, and Foreign exchange market

U.S. dollars per 1 euro

1999 2010

Lowest

Highest

Year

Date Rate

Date Rate

1999 03 Dec $1.0015 05 Jan $1.1790

2000 26 Oct $0.8252 06 Jan $1.0388

2001 06 Jul $0.8384 05 Jan $0.9545

2002 28 Jan $0.8578 31 Dec $1.0487

2003 08 Jan $1.0377 31 Dec $1.2630

2004 14 May $1.1802 28 Dec $1.3633

2005 15 Nov $1.1667 03 Jan $1.3507

2006 02 Jan $1.1826 05 Dec $1.3331

2007 12 Jan $1.2893 27 Nov $1.4874

2008 27 Oct $1.2460 15 Jul $1.5990

2009 04 Mar $1.2555 03 Dec $1.5120

2010 08 Jun $1.1942 13 Jan $1.4563

Source: Euro exchange rates in USD, ECB


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[edit] Flexible exchange rates

The ECB targets interest rates rather than exchange rates and in general does not

intervene on the foreign exchange rate markets, because of the implications of the

Mundell-Fleming Model which suggest that a central bank cannot maintain interest rate

and exchange rate targets simultaneously because increasing the money supply results in

a depreciation of the currency. In the years following the Single European Act, the EU

has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the

exchange rate regime of the euro is flexible, or floating.

[edit] Against other major currencies

After the introduction of the euro, its exchange rate against other currencies fell heavily,

especially against the U.S. dollar. From an introduction at US$1.18/ , the euro fell to a

low of $0.8252/ by 26 October 2000. After the appearance of the coins and notes on

1 January 2002 and the replacement of all national currencies, the euro began steadily

appreciating, and regained parity with the U.S. dollar, on 15 July 2002. The euro has not

fallen below parity with the U.S. dollar since December 2002 but has risen in value.

Exchange rate evolution of the euro compared to USD, JPY and GBP. Exchange rate at

start is put to 1.

Green: in Jan-1999: 1 = $1.18 ; in Jul-2008: 1 = $1.57

Red: in Jan-1999: 1 = 133 ; in Jul-2008: 1 = 168

Blue: in Jan-1999: 1 = 0.71 ; in Jul-2008: 1 = 0.80

On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At

the end of 2004, it reached $1.3668 ( 0.7316/$) as the U.S. dollar fell against all major


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currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to

$1.18 ( 0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In

November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one

record high after another. On 15 July 2008, the euro rose to an all-time high of $1.5990

( 0.6254/$). In a reversal, in August 2008 the euro began to drop against the U.S. dollar.

In just two weeks the euro fell from its peak to $1.48 and by late October it reached a two

and a half year low below $1.25 before moving back above $1.50 by November 2009.[63]

On 29 December 2008, the pound sterling fell to an all-time low of 0.97855 ( 1.0219/

) against the euro, although its value recovered somewhat in 2009.[64] In early 2010,

concerns over the solvency of Greece caused a drop in the exchange rate against the

dollar followed by a bounce to $1.33.[65]

Current and historical exchange rates against 29 other currencies (European

Central Bank)

Current dollar/euro exchange rates (BBC)

Historical exchange rate from 1971 until now

Linguistic issues


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Main article: Linguistic issues concerning the euro

The formal titles of the currency are euro for the major unit and cent for the minor (one

hundredth) unit and for official use in most eurozone languages; according to the ECB,

all languages should use the same spelling for the nominative singular.[66] This may

contradict normal rules for word formation in some languages; e.g., those where there

is no eu diphthong. Bulgaria has negotiated an exception; euro in the Cyrillic alphabet

is spelled as e (evro) and not e (euro) in all official documents.[67] The European

Commission's Directorate-General for Translation states clearly that the plural forms

euros and cents should be used in English.[68]

[edit] Notes

1. ^ Andorra started negotiating a treaty with the ECB for becoming a State with

issuing rights in 2003 but no treaty was signed since.

2. ^ "By UNMIK administration direction 1999/2". Unmikonline.org.

http://www.unmikonline.org/regulations/admdirect/1999/

089%20Final%20%20ADE%201999-02.htm. Retrieved 2010-05-30.

3. ^ By an internal act (references missing)

4. ^ Alongside Zimbabwean dollar (suspended indefinitely from 12 April 2009),

U.S. dollar, Pound Sterling, South African rand and Botswana pula

5. ^ Except northern Cyprus that uses Turkish lira


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6. ^ Including overseas departments

7. ^ Except Campione that uses Swiss franc.

8. ^ Metropolitan only. Overseas territories uses the Netherlands Antillean guilder.

9. ^ "By monetary agreement between France (acting for the EC) and

Monaco". http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?

uri=OJ:L:2002:142:0059:0073:EN:PDF. Retrieved 2010-05-30.

10. ^ "By monetary agreement between Italy (acting for the EC) and

San Marino". http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?

uri=OJ:C:2001:209:0001:0004:EN:PDF. Retrieved 2010-05-30.

11. ^ "By monetary agreement between Italy (acting for the EC) and

Vatican city". http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?

uri=OJ:C:2001:299:0001:0004:EN:PDF. Retrieved 2010-05-30.

12. ^ By the third protocol to the Cyprus adhesion Treaty to EU and British local

ordinance.

13. ^ By agreement of the EU Council. Mayotte will become an integral part of

France, and hence the EU and the eurozone, in 2011 then becoming a French

department with a 20 year transitional period.

14. ^ "By agreement of the EU Council". http://eur-lex.europa.eu/LexUriServ/

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