THE EURO
The currency union is the final phase of the EU´s economic and monetary union which has been following a course set out in the Maastricht Treaty.
Some EU countries will initially be left out of the euro: Greece didnt meet fiscal and economic standards set in the Treaty. The United Kingdom, Denmark and Sweden opted not to join from the beginning but may participate later. The EU is on the other side in talks with other countries for further expansion into Central Europe.
The Euro started successfully Jan. 1, 1999, when foreign-exchange rates of the participating national currencies became irrevocably fixed against each other and against the Euro.
The Euro notes and coins will not be available until Jan. 1. 2002. Until then the various national currencies-which at that point will simply be different denominations of the Euro-will continue to circulate.
And each national currency will always have a certain value against the Euro, which will not only exist on paper but which is used already now as a monetary unit in electronic transactions. For example stocks are quoted in Euro, all financial transactions can be made in national currencie or Euro.
A new European Central Bank (ECB), based in Frankfurt, officially began operating June 1. 98. The fledgling central bank, which could eventually be as powerful in Europe as the Federal Reserve is in the U.S., set interest rates for the Euro zone Jan. 1 99. As a result the national central banks will fade into the background, responsible only for national aspects.
A big difference to the US: the Fed deals with only one government. while the ECB is faced with 11 national governments that all have their own fiscal policies. That's because Europe's currency union is happening before any political union.
European governments have made a couple of moves to compensate for the lack of political union. They have agreed on a so-called stability and growth pact that aims to keep fiscal policies in line after the Euro is launched, with sanctions for countries that have excessive budget deficits. But these sanctions are only fiscal.
Also finance ministers from the 11 initial currency-union members are holding informal regular meetings in a group known as the Euro-11. Though it isn't entirely clear how this will work, it's expected to be a forum for coordinating fiscal policy.
The ECB itself has a 17 member governing council, in which each member has an equal vote on monetary policy. Wim Dusenberg, former Dutch central-bank governor, is the first ECB president and head of its policy-making council.
He is also part of a six-member directorate that has permanent offices in the Frankfurt ECB building.
That single European currency is expected to strengthen the competitiveness of an economic bloc that rivals the size of the U.S economy.
The Euro will force international investors accustomed to thinking in national terms to overhaul their securities portfolios to focus on pan-European sectors.
And, for travelers in Europe, the Euro means that eventually it won't be necessary to change money and pay transaction fees at each border crossing.
Nevertheless the Euro is an experiment that doesn't have a precedent and it is above all a political project, since politicians decide which countries join the currency union.
For the European economy, the Euro can be a way to cut transaction costs and encourage cross-border mergers that will enable Europe to compete in the race for globalization.
For the consumer, the Euro is a single currency that will initially include 11 European countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Thus the prices will be more transparent and most likely be leveled out throughout Europe.
Very interesting materials on many aspects of the Euro you can find at Patrick O'Beirne ´s site at http://www.sysmod.com. Patrick publishes a free monthly newsletter "PraxIS" focusing on euro and IT topics. You can sign up free.
last modified: 05/30/06 13:43