Eric Johnson

 The Euro: A Summary  History Lesson  Sovereign Debt Crisis  Future of the Euro  Q & A

 Born from the Maastricht Treaty  Second most traded currency in the world.  23 countries use the currency  17 Economic Monetary Union (EMU or “Eurozone”) member states  6 non-EU states unofficially  The most successful monetary union of modern history (so far)

 Gustav Stresemann  Chancellor of Germany  League of Nations  Proposed an initiative for economic and monetary union  Common currency  Idea fell on deaf ears  Aftermath of WWI  Recent failure of the Latin Monetary Union

 European Commission initiative for greater coordination of economic and monetary policy  Pierre Werner  Prime Minister of Luxembourg  Tasked with creating a solution  Report published in October 1970: currency band between EEC members  “snake in the tunnel”  Collapse of the Bretton Woods System in 1971

 European Monetary System (EMS)  Creation of the European Currency Unit (ECU)  An accounting currency for EMS member countries  ECU factors in weight of countries’ economic trade and financial sector on the European Economic Community (EEC)  For members, exchange rates float within a narrow margin  For non members, exchange rates float freely  Setting the stage for the Euro

 Passed by the EEC  Creation of a single market by 1992  Man in charge: EC President Jacques Delors  Delors Report in 1989  Established a three stage program towards achieving this goal  First stage: Abolishment of exchange controls ▪ Allow free flow of capital  Second stage: Creation of the European Monetary Institute ▪ Later the European Central Bank (ECB)  Third stage: Launch

 The Maastricht Treaty  February 7, 1992  Created the European Union (EU)  Goal: Establish a common currency by January 1999

 Four key requirements  Inflation rates be no more than 1.5 times the weighted average of the three best performing nations in the EU.  Government Finance: ratio of annual government deficit to GDP must not exceed 3 percent at the end of the preceding fiscal year. Ratio of government debt must not exceed 60 percent from previous fiscal year.  Country must adhere to exchange rate mechanism of EMS for two years and not devalue its currency  Nominal long-term interest rate must not be more than two percent above the three lowest inflation member countries

 Officially: January 1, 1999  Legacy currencies still accepted  Not minted until January 1, 2002  7.4 billion notes  38.2 billion coins  Euro starter kits  Massive marketing campaigns  Educating banks, retailers, and the public

 Early 2000s  Slow start  Euro value against the dollar ▪ Peak at $1.59  Growth in the EMU (Eurozone) ▪ Initially: 11 countries and 3 micro-states ▪ Today: 17 countries (officially), 6 countries (unofficially)

 2009: founding of the Euro Group  Formalized by Lisbon Treaty  Finance Ministers from EMU member states  Discuss issues pertaining the Euro  Current President ▪ Jean-Claude Juncker, Prime Minister of Luxembourg

 Greece Bailout  Received 110 billion Euros from IMF  Caused by: ▪ Large deficit ▪ Poor economy ▪ Political corruption ▪ Misreporting of economic statistics to EU  Ireland  85 billion Euro loan  Portugal  78 billion Euro loan  Spain & Italy  Difficulty controlling deficits  Economies big enough to damage the Euro

 Possible scenarios  Germany opts-out ▪ Chancellor Merkel fed up with bailouts ▪ Undisputed powerhouse economy of EU  Weaker nation opts-out ▪ Greece, Ireland, or Portugal ▪ Political and economic costs too great  Soldier on ▪ Euro currently trading at $1.41 ▪ Economies of bailed-out countries account for less than 5% of EU  Rock and a hard spot

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