Economics
European Currency
The European currency refers to the official currency used by the member countries of the Eurozone, which includes 19 of the 27 European Union (EU) member states. The currency is known as the euro (€) and is managed by the European Central Bank. It is one of the most widely used and traded currencies in the world.
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10 Key excerpts on "European Currency"
eBook - PDFDemocracy and Constitutionalism in the European Union
Collected Essays
- Federico Mancini(Author)
- 2000(Publication Date)
- Hart Publishing(Publisher)
5 The Euro: A Currency in Search of a State “The transfer of functions to a monetary union involves the corresponding decline of the powers of the States who become its constituent members. It does not matter whether the union is equiparated to a federal State or whether the members continue to be called States or are described as Laender , cantons or provinces. What matters is that numerous functions traditionally vested in the nation State are transferred to the union and that such transfer has far-reaching direct and indirect financial, economic, budgetary, and fiscal consequences for the member States . . . There cannot . . . be any doubt that a monetary union presupposes a constitutional organisation which is or approximates that of a single (federal) State”. F.A. Mann, The Legal Aspect of Money , 5th edition (Oxford, 1992). 1 . INTRODUCTION T HE DECISION TO enter the third stage of European Monetary Union (EMU) and the ensuing establishment of the European Central Bank in June 1998 have opened a new and exciting phase in the long-running debate on democracy and political unity in Europe. That the Economic Community of old suffered and today’s European Union still suffers from a serious democratic deficit has been a commonplace in academic writing, the media and, increasingly, the political élites of some Member States for at least two decades. As everyone knows, its most disturbing aspects are usually identi-fied in the fact that the Council of Ministers, Europe’s dominant institution, lies beyond the reach of the citizens voting in European elections, in the still limited powers of the European Parliament as a legislative body, in the utter opaqueness of the decision-making machinery and in the overwhelming role which tech-nocrats, both unaccountable and devoid of popular legitimation, play in the operation of that machinery.
eBook - PDF- Stephen Padgett, William E. Paterson, Reimut Zohlnhöfer, Stephen Padgett, William E. Paterson, Reimut Zohlnhöfer(Authors)
- 2014(Publication Date)
- Red Globe Press(Publisher)
The chapter begins with a brief discussion of the rationale and history of European monetary integration and then discusses the somewhat ambiguous relationship Germany has had with the common currency from its inception through negotiations to its eventual introduction, taking both international and domestic factors into account. The positive and negative economic consequences of the euro for Germany are then outlined, arguing that the latter outweighed the former over roughly the first five years of the new currency’s lifetime, while since about 2005 the benefits have clearly won the upper hand in Germany. How Germany positioned itself during the crisis in the eurozone since 2010 will be the focus of the last part of the chapter. 188 Monetary integration in Europe: a brief primer Giving up a sovereign currency and opting to join a common currency is a big decision for any country to take. The reasons many European coun-tries had for this is essential background knowledge for understanding the topics discussed in this chapter. Some key economic and historical facts and motives that played a role in the creation of the euro are then outlined. The roots of the common currency project date back at least until the early 1970s. Under the leadership of the then Luxembourg prime minister and minister of finance, Pierre Werner, a report was produced and presented in October 1970 which recommended the introduction of a common European Currency. The plan suggested three stages and a sched-ule for its introduction. But the breakdown of the system of fixed exchange rates – better known as the system of Bretton Woods – in 1973 initially prevented the implementation of these plans. The shift from fixed to flexible exchange rates proved a sea change in global economic policy.
eBook - PDF- Masaaki (Mike) Kotabe, Kristiaan Helsen(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
Three of the developed EU member states, namely, the United Kingdom (not surprisingly), Sweden, and Denmark, decided to opt out and sit on the fence. The new EU members may choose to adopt the euro in the future when they meet the EU’s fiscal and monetary standards and the member states agreement. The eurozone economies combined rep- resented about 12% of world’s gross domestic product with a population of roughly 342 million people in 2020. Each of these countries has committed itself to adopt a single currency, the euro, designated by the € symbol. The euro bank notes and coins are shown in Exhibit 3‑8. On January 1, 2002, the euro notes and coins (see Exhibit 3‑9 for some spelling rules) began to replace the German mark, the Dutch guilder, and many other currencies. By July 1, 2002, the local currencies ceased to exist. Those of you who traversed Europe before 2002 may remember the financial strains of exchanging one European Currency for another one. Now this hassle became a thing of the past. The creation of the euro has been described as “the most far- reaching development in Europe since the fall of the Berlin Wall.” 55 According to the Economic and Monetary Union (EMU), it has already helped create a new culture of economic stability in Europe, to weather the recent slowdown in the world economy and to avoid the kind of damaging intra-European exchange rate tension. With the euro in place, the citizens of euro area countries 55 “The Long and Arduous Ascent of Euro-Man,” Financial Times, December 15, 1998, p. 4. Exhibit 3-7 19 Eurozone Countries 103 Marketing in the Euro Area are now looking forward to the benefits of increased price transparency, more intense competition in the market place and greater financial integration in Europe. 56 Although some of the benefits of the euro to firms and consumers are clear, many policy questions are still left unanswered.
eBook - PDFUnited States of Europe
European Union and the Euro Revolution
- Manoranjan Dutta, Badi H. Baltagi, Efraim Sadka(Authors)
- 2011(Publication Date)
- Emerald Group Publishing Limited(Publisher)
112 The United States of Europe Several factors warrant careful review. Although the euro is the official currency of the 12 members of EU-15, the United Kingdom, Denmark, and Sweden continue to remain the three out-members and persist in using their respective national currencies. As full members of the EU, they enjoy advantages of free flow of trade, free flow of investment, and free movement of labor in the integrated EU market. This cannot continue indefinitely; sooner or later, the three will have to opt for the euro or leave the EU. We have reasons to believe that they will elect to join the Eurosystem. In the WTO, the EU is already recognized as a single member represented by one representative with one vote. One can also argue that the pound, krone, and krona are sheltered currencies and are not truly free floating currencies in the global market. A suggestion to stabilize euro–dollar exchange rates involves immediately granting the ECB full membership to the IMF. However, the principle of competition between the euro and the dollar economic regimes alone will optimize global economic gains, whereas a plan to establish euro–dollar hegemony will be counterproductive. The concept of an ‘‘Anglo-Saxon’’ currency will provoke a new currency debate, based on race and caste, hardly an optimal option. In the financial markets, references to a dollar market consisting of the American, Australian, and New Zealand dollars are already in existence. The Japanese yen will have a different framework until an Asian economic community is formally instituted. The new 10 members of EU are going through a process of scrutiny to become full members of the Eurozone. As of May 16, 2006, Slovenia has fulfilled the convergence criteria to join the Eurosystem. The 10 have a deep interest in joining the Eurozone, because that will promote the free flow of investment from the rest of the EU as such investments will be free from barriers and exchange rate fluctuations.
- Shigeyuki Hamori, Naoko Hamori(Authors)
- 2009(Publication Date)
- World Scientific(Publisher)
1 History of the EU Monetary Union 1.1. Introduction Just over a decade has passed since the euro was introduced as the single currency of the 11 states of the European Union (EU) — Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain — unifying the monetary policy under the European Central Bank (ECB) from January 1999. The policy management of the ECB which spans multiple independent states was first viewed with caution, but it has achieved a measure of success in the face of a variety of challenges. As a result, the euro has established its status as an international currency second only to the US dollar. Furthermore, the number of states that participate in the mon-etary union (officially called the “Economic and Monetary Union”, or EMU) has grown to 16 with the new additions of Greece in 2001, Slovenia in 2007, Cyprus and Malta in 2008, and Slovakia in 2009. This chapter attempts to outline and consider the kinds of devel-opments that led to the bold experiment of realizing the EMU in the EU. Table 1.1 provides a brief history of the EMU. 1.2. Various Experiments Toward Achieving the Monetary Union 1.2.1. Werner Report Since the establishment of its predecessor, the European Economic Community (EEC), 1 in 1958, the EU has sought to realize an 1 The name “EEC” was later changed to the European Community (EC) in 1967, and to the European Union (EU) in 1993. 1 2 Introduction of the Euro and the Monetary Policy of the ECB Table 1.1. A Brief History of the EMU. Jul 1952 West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg (“the Six”) establish the European Coal and Steel Community (ECSC). Jan 1958 The Treaty of Rome comes into force, establishing the European Economic Community (EEC) and the European Atomic Energy Community (EAEC or Euratom). Jul 1967 The Treaty of Brussels comes into force, unifying the above three Communities to form the European Community (EC) comprising six countries.
eBook - PDFThe Impact of the Euro
Debating Britain's Future
- Mark Baimbridge, B. Burkitt, P. Whyman(Authors)
- 1999(Publication Date)
- Palgrave Macmillan(Publisher)
2 The new European Currency is the Euro. The separate national curren- cies will not disappear from sight till 2002 but from January 1999 their exchange rates are locked irrevocably both to each other and to the Euro. Initially only government debt will be denominated in Euros, but over the following three-year transition period, all other obligations and 56 Richard Layard 57 contracts will be changed over to Euros. Then at the beginning of 2002 Euro notes and coins will come into circulation and by the middle of that year all national notes and coins will have been exchanged for Euros. In April 1998 the leaders of Europe's governments (presided over by Britain) had to decide which countries satisfied the criteria entitling them to join. Britain did in fact satisfy most of the main 'convergence criteria' laid down in the Maastricht Treaty. These are that by 1997 a country has: • a budget deficit under 3 per cent of GDP, or nearly so; • a public debt below 60 per cent of annual GDP, or approaching that level sufficiently fast; • compared with the three lowest inflation countries, inflation not higher by more than 1.5 per cent, and long-term interest rates not higher by more than 2 per cent. There is one other criterion: that the currency has been within the 'nor- mal operating margins of the ERM' for two years. This criterion is unclear 3 but it would probably not be invoked against a Labour government. The choice will be ours. So what are the advantages and disadvantages of joining? Advantages On the economic side there are two sorts of arguments in favour. The first five relate to why Britain should favour the creation of a single cur- rency; the rest relate to why we should join (even if we didn't want it to happen): 1 Under a single currency, there would be no national currencies and therefore no cost of changing or trading currencies.
eBook - PDF- Michele Chang(Author)
- 2016(Publication Date)
- Red Globe Press(Publisher)
189 Chapter 8 EMU and the World Since the French government decried the “exorbitant privilege” of the US in issuing the international reserve currency and alleged its misuse of this power in the 1960s (Eichengreen 2011 ), the poten-tial benefits and prospects of Europe taking over such a role have figured among the most important implications of European mon-etary cooperation. While it would entail both economic and politi-cal costs, the gains could be substantial. This chapter evaluates the international role of the euro. It first reviews the status of the euro as an international currency and how it fares compared to the inter-national reserve currency, the US dollar. The chapter then considers the rise of the Chinese renminbi and how this impacts the euro. It continues with the euro’s external representation, including its exchange rate and the participation of the euro in the IMF (the G20, Bank for International Settlements and the Financial Stability Board are covered in Chapter 4 ). The final section considers the desirabil-ity of the ascendance of the euro. The Euro as an International Currency Broadly speaking, what makes a currency the international reserve currency? One can view this in terms of a set of political and eco-nomic preconditions combined with the political will of the country involved. International economic pre-eminence, measured by such factors as a country’s share in world output and trade, contribute to its use as an anchor currency and in invoicing trade. It also makes it likely that it would be an important component of official reserves. Moreover, the balance of payments of the issuing country should be sustainable. Such network externalities play an important role in the emergence of a reserve currency. Others must want to use the cur-rency, thus factors such as positive economic growth and investment yields could be important in influencing such decisions.
eBook - PDFThe Politics of Europe
Monetary Union and Class
- W. Bonefeld(Author)
- 2001(Publication Date)
- Palgrave Macmillan(Publisher)
Any suggestion that the exchange rates of the DM, the US dollar and the Yen be fixed, fails to see the structural reasons for the volatility of these rates. The single European Currency, when it will have replaced the national currencies, will abolish monetary crises within the European Com- munity. But this result wil l abolish neither wider monetary crises nor unequal development within Europe. Crises are inherent in the capitali st system. Attempts to rid capitalism of them can only change their form of manifestation. The European monetary union and the single c urrency The previous discussion can now be used to inquire int o th e E uropean Monetary Union (EMU) . To this end it is necessary to begin with an analysis of the precursor of the EMU, the European Monetary System (EMS). The two basic features of the EMS were the Exclwnge Rate Mechanism, or ERM, and the European Cu"ency Unit, or Ecu. 20 The Ecu was a compos- ite currency in which all member states' currencies were represented in different quantities (weights). Through this fixed value relative to the Ecu, national currencies had a fixed value relative to each other. For example, according to the Financial Times of 7 March 1995, Ecu 1 was equal to Fl.2.152 and to FFr.6.406. These were the bilateral central rates against the Ecu or central rates for short. They implied that FL.2.152 = The Singlt> European Currency 47 FFr.6.406. Or, FFr.1 = 2.152/6.406F1 = Fl.0.3359 and Fl.l = 6.406/ 2.1S2FFr = FFr.2.976. These were the cross bilateral central rates, or cross rates for short. Up to 1992, t he member states under t ook to keep their currencies' fluctuations withi n relati ve ly narrow li mits- 2.25 per ce nt above or below the c ross rates (Italy was all owed a ± 6 per ce nt band but ado pted the ± 2. 25 per ce nt ba nd in 1990). These limits of flu ctuati ons were the bands or bilateral limit s.
- Michele Fratianni, Jurgen Von Hagen(Authors)
- 2019(Publication Date)
- Routledge(Publisher)
8 European Monetary Union In Chapter 2 we noted that the movement for European monetary union (EMU) has gained momentum since 1988. Today its chances to succeed look brighter than ever before. We pointed out the intimate link between the movement for monetary union in Europe and the quest for political union: economic considerations alone do not fully explain the push for EMU, nor the opposition to it. Nonetheless, economic arguments remain important to evaluate the prospect of EMU and to assure that the institutions of the future union be designed in a way to foster the best economic outcome. The literature on monetary integration has long been heavily influenced by the work of Mundell (1961), McKinnon (1963), and Kenen (1969) on optimum currency areas. Resting on the Keynesian paradigm of sticky prices and wages, they focus on how permanently fixed exchange rates change the ability of an economy to adjust to shifts in aggregate demand. But as Jiirg Niehans has remarked, the concept of an optimum currency area is flawed because it lacks a well-defined criterion of optimality. More recent literature instead has taken a cost-benefit approach to monetary union and has discovered that there are more sources of costs and benefits than those implied by the Keynesian stabilization problem (Commission of the EC 1990; De Grauwe 1992). In this chapter, we follow the new approach and analyze the potential advantages and disadvantages of EMU. Our conclusion is that the costs and benefits depend crucially on the institutional design of the monetary union. With this in mind, we point out some important characteristics for a successful EMU. 8.1 The Costs and Benefits of European Monetary Union The costs and benefits of European monetary union arise from three 161 162 European Monetary Union grounds, all of which have already been mentioned and discussed in the context of the EMS. The first is the use of a single medium of transactions and unit of account in the EC.
eBook - PDFThe Political Economy of Exchange Rate Policy-Making
From the Gold Standard to the Euro
- S. Kettell(Author)
- 2004(Publication Date)
- Palgrave Macmillan(Publisher)
This was designed to provide the EC with a ‘zone of monetary stability’, and was to form a new and improved basis for co-operation between member states as part of the new and renewed drive towards economic and monetary union. Real progress towards the creation of a single currency though was not made until the mid-1980s. In 1986 the Single European Act com- mitted its signatories to extend the principles of the common market by overseeing the creation of a single liberalised market in goods, ser- vices, and labour by 1992, and as a corollary of this, in 1988 the EC established the Delors committee in order to devise a new plan for reaching the goal of EMU. The following year the committee presented its findings, and as with the Werner report also envisioned that this could be achieved via a three stage process. Among the various steps that would need to be completed en route were the creation of a European Central Bank (ECB) in order to provide a single European monetary policy; the achievement of a greater degree of economic con- vergence and policy co-operation between participating nations; and 146 The Political Economy of Exchange Rate Policy-Making the maintenance of European exchange rate stability, with all those taking part in the process of EMU being required to hold their curren- cies steady within the narrow band of the ERM prior to the final move to monetary union. No sooner was the single market programme completed and the implementation of the Delors plan underway however, than the crisis which engulfed the ERM threatened to bring the entire edifice of EMU crashing down. From the summer of 1992 the growing difficulties surrounding the ratification of the Maastricht Treaty on European Union were accompanied by a series of enforced devaluations through- out the European Monetary System, eventually forcing ERM members to widen their fluctuation margins to an effectively meaningless 15% on either side of the remaining parities.
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