Euro: Promises of Integration
With the collapse of the Bretton Woods system and the fluctuations (devaluation and revaluation) of the exchange rates inflicted upon major currencies of European nations, in The Hague in December 1969, the Heads of State and Government decided to make economic and monetary union (EMU) an official goal of European integration. It has set the tone for further measures, including the launching of the Euro.
Despite setbacks and disruptions during the depression of the 70's, the integration process again picked up steam with the creation of the European Monetary System (EMS) in 1979. Resolving to tackle the relatively high transaction costs linked to currency conversion and the uncertainties linked to exchange-rate fluctuations, Madrid European Council launched the first stage of EMU: full liberalization of capital movements in eight Member States by 1 July 1990. Meanwhile, Member States were to make significant progress towards economic policy convergence.
This process should culminate in the introduction of the single currency by the end of the century. The conviction was growing in economic and financial circles that the Union would have withstood the recession more successfully if the single currency had existed. To this end, eurozone members must also make significant progress towards convergence of their economies.
The weekend of 1, 2 and 3 May 1998 will go down in history as the most important milestone on the road to Economic and Monetary Union. On the basis of a recommendation adopted by the Ecofin Council (Economics and Finance Ministers) and having consulted the European Parliament, the Council, meeting at the level of Heads of State or Government, unanimously decided that eleven Member States, namely Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland, fulfilled the necessary conditions for adopting the single currency on 1 January 1999.
The European Central Bank was therefore established on 1 June 1998, succeeding the European Monetary Institute and also based at Frankfurt. It became operational on 1 January 1999.
1.What is the euro?
The euro is the European Union's single currency, which arrived in cashless form after years of negotiations and preparation on January 1 1999 when 11 EU countries formed an Economic and Monetary Union (EMU) and irrevocably locked the exchange rates of their currencies against the euro.
Greece became the twelfth member when it joined the euro on January 1 2001.
Although the euro zone's citizens are using their own bank notes and coins, they are no longer stand-alone currencies, but subdivisions of the euro. Their value against the euro is irrevocably fixed. So 1 euro is the same as 166.386 Spanish pesetas or 6.56 French francs. There are 100 cents in a euro, sometimes called euro cents.
On January 1 2002, euro notes and coins will come into circulation. The scale of the project presents a massive logistical challenge: 14.25bn new banknotes, representing E642bn and 56bn coins, weighing thousands of tons, will have to be minted.
Banks already conduct transactions in euros; checks, credit transfers and direct debits can be denominated in them; equities are priced in euros; and foreign exchange dealers trade in euros.
There will be seven euro notes and eight euro coins. The notes will be: 500, 200, 100, 50, 20, 10, and 5 euro. The coins will be: 2 euro, 1 euro, 50 euro cent, 20 euro cent, 10 euro cent, 5 euro cent, 2 euro cent, and 1 euro cent.
2.Who are members?
Twelve states now make up the euro zone. They are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
Danish voters on September 28 2000 became the first European citizens to decide by popular referendum whether to adopt the euro. In the final count, 53.1 per cent voted against the euro.
The governments of UK and Sweden have decided to stay outside the euro for the time being.
3.Can any country join the euro?
In order to join the euro a country must be a member of the European Union and be able to pass economic tests set out by the Maastricht Treaty.
The Treaty requires economies to have achieved certain levels of performance on inflation, public deficits and debts, exchange rates and interest rates. These targets ensure not only stable economic conditions but also a degree of convergence between participating member states which allows EMU to function smoothly.
The terms of the Treaty are that:
Annual government deficit must not exceed 3 per cent of GDP.
Total outstanding government debt must not exceed 60 per cent of GDP.
Rate of inflation within 1.5 percentage points of the three best performing EU countries.
Average nominal long-term interest rate must be within 2 percentage points of the average rate in the three countries with the lowest inflation rates.
Exchange rate stability, meaning that for at least 2 years the currency has kept within the "normal" fluctuation margins of European Exchange Rate Mechanism (ERM).
The European Council makes the final judgment on whether a member state fulfils the necessary conditions for the adoption of the euro.
5.How are businesses within the euro zone affected by the euro?
Companies operating within the euro zone have already enjoyed a reduction in many of their costs, particularly in treasury management, foreign exchange transactions and through the elimination of much foreign exchange risk.
With the conversion to euro notes and coins however, increased price transparency should trigger strong competition in some sectors so, the cost to consumers of certain goods in certain markets may have to fall. Businesses also face one-off costs in the changing of equipment and staff training.
However, critics of the euro feel that handing over control of interest rates and exchange rate policy to the ECB could mean that action is taken centrally which is inappropriate for the economies in which companies operate.
6.What will the euro mean for consumers?
The expectation is that consumers will be able to shop around for bargains as it becomes easier to compare prices between countries as all goods will be valued in euros.
However, there are fears that businesses will seize the opportunity to raise their prices amid the confusion arising from the changeover to euros.
III External aspects of euro and EMU (European Monetary Union)
The launching of euro and the completion of the EMU will be instrumental in reshaping the international monetary system, principally by making it more balanced and symmetrical. As this involves a progressive approach, whose effectiveness mainly rests with the smooth circulation of euro and the independent execution of the stability-oriented policies by the European Central Bank (ECB), its repercussions will be most manifest in the following aspects:
1. The use of single currency will better coordinate the economic policies of its Member States, which in turn will contribute to a more pronounced economic status of the euro area comparable to that of the U.S and larger than that of Japan.
1．使用单一货币将更好地协调欧元区成员国各自的经济政策，而这会使欧元区的 经济地位变得更为显著， 超过日本并足以与美国抗衡。
2. Owing to the disappearance of tensions between European currencies, the economic performance of the eurozone will be less sensitive to exchange rate fluctuations.
3. With the completion of EMU, the European financial market will become truly integrated with the implementation of an efficient trans-border payment system (TARGET). The recent agreement clinched by the ECB to finalize the deadline for lowering the charges and commission rates for trans-border transactions and capital transfer can serve as a case in point.
4. The euro should constitute an important reserve currency and play a key role in portfolios of financial assets on an international scale.
5. European economic policies should, in light of its aim to foster easy monetary conditions and maintain appropriate exchange rates, merit close attention as a valuable source of reference in international economic affairs.
6. The representation of the EMU within international institutions such as the IMF is a matter awaiting further discussions and consultations. Mechanisms of monitoring and mutual compatibility are to be highlighted.