Monetary Union
Eleven member states - Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain- adopted the new currency on January 1st. 1999. At that time the conversion rates from the present currencies to the Euro became fixed. From this date each of the legacy currencies will remain in circulation but will no longer have independent value apart from the Euro.
On January 1st 2002 Euro bills and coins will be introduced and the legacy currencies will no longer be accepted as legal tender.
The introduction of the single currency will have more far-reaching consequences than most of us have imagined so far. There are certainly risks, but the opportunities will be more and greater.
By nature, man is slow to change, a creature of habit that initially reacts to change with skepticism. Only once the changes have received more acceptance, he will react – initially with astonishment.
As smart investors we can turn this situation to our own advantage. Sluggishness and the slow acceptance of the changes the Euro will involve mean that he has lost none of its topicality for investors and will constantly offer new opportunities.
A roll-call of the facts which already figure in the markets thinking or which it has so far anticipated insufficiently or not at all will assist in recognizing investment opportunities.
It is generally assumed, that the Euro will be hard currency. The European Central Banks monetary policy will aim for a strong Euro, if only to ensure a successful launch. However, in such a large economic area the value of a currency against other currencies is no longer of such prime importance. As the second world currency after the US Dollar the Euro will be able to afford a certain amount of exchange rate fluctuation without this having a sustained adverse effect on the domestic economy.
The convergence of interest rates in Europe in recent years has made it absolutely clear, that the market believes that monetary union will be successful. Apart from minor differences in financial reliability, Members States interest rate levels have been adjusted to Germanys levels. The goodwill by the market to certain countries with regard to their budget discipline is enormous. Too little account is taken of the fact that in the future these countries will no longer be able to solve their problems by printing money. Consequently, a widening of interest rate differences between various member states , linked to their financial reliability, is to be expected.
The total volume of the bond markets of all participants in monetary union will be greater than that of the US bond market. This, the largest capital market in the world, will become more attractive, liquidity will increase, and more foreign capital, i.e. essentially American institutional capital, will be drawn in. However, the Euro equity market is lagging behind. Euro undertakings will be forced, as a result of the introduction of the single currency, into further increasing transparency and productivity. Euro equities are being overlooked by US pension funds but they will not be able to keep ignoring the European market and will increasingly invest in Euro equities. Similarly, European institutions will also have to follow the trend into long-term attractive (Euro) equities.
In conclusion we must be prepared for the Euro still to be subject to quite some movement on the financial markets. The low level of risk in budgetary discipline on the part of some participating countries must be set against the enormous opportunities in Euro investments.
Article from M. Pirovino
Today there are countries of the EU who introduced the Euro, otheres, like the UK, who not. In addition there are some European countries who introduced the Euro without being part of the European Union:
BACKlast modified: 12/04/07 08:10