HOW THE EUROPEAN SINGLE CURRENCY EVOLVED By Adam Dangelmayr & Ibrahim Kekec.
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Presentation on theme: "HOW THE EUROPEAN SINGLE CURRENCY EVOLVED By Adam Dangelmayr & Ibrahim Kekec."— Presentation transcript:
HOW THE EUROPEAN SINGLE CURRENCY EVOLVED By Adam Dangelmayr & Ibrahim Kekec
REASONS BEHIND THE MONETARY COOPERATION To enhance the Europe’s role in the world monetary system. To turn the European Union into a truly unified market.
European Monetary System (EMS) 1979-1998 Capital control through fixed exchange rates German Monetary Dominance & the Credibility Theory of the EMS Stability through fixed exchange rates Discouraged inflation
The Maastricht Treaty in 1991 The beginning of the European Economic and Monetary Union (EEMU) Why important 1.Greater degree of market integration 2.The end of German dominance and macro policies 3.A cushion to speculative attacks 4.Historical reasons
The Euro “1992” Initiative Market liberalization 1.Free flow of goods & services, and factors of production Microeconomic efficiency and macroeconomic stability
The Euro Zone The Maastricht Convergence Criteria 1.Inflation rate no more than 1.5 percent 2.Stable EXRT 3.Public deficit no more than 3 percent of the country’s GDP 4.Public debt below 60 percent of its GDP Ongoing monitoring of criteria 3 and 4
Stability and Growth Pact A cushion against inflationary pressures Set budgetary objectives stopping excessive public debt and deficits The European Central Bank (ECB) Headquartered in Frankfurt plus 15 other national banks The governing council 1.6 ECB members and heads of national central banks 2.Price stability with supreme privileges Above the European Parliament
The Revised EXRT Mechanism A tool to keep the target of low inflation Discourages the competitive devaluations against the Euro by the union countries that are not a part of EMS One of the conditions in the Maastricht Treaty