The Changeover to the EURO - PowerPoint PPT Presentation

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The Changeover to the EURO. The euro is the official currency and is divided into 100 cents National currency units are denominations of the euro The euro can only be used for non-cash transactions Anyone can have a euro bank account..even YOU!. 12 Eurozone Countries.

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The Changeover to the EURO

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The changeover to the euro l.jpg

The Changeover to the EURO

  • The euro is the official currency and is divided into 100 cents

  • National currency units are denominations of the euro

  • The euro can only be used for non-cash transactions

  • Anyone can have a euro bank account..even YOU!

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12 Eurozone Countries

Austria, Belgium, Finland, France, Germany, Greece, Holland, Ireland, Italy, Luxembourg, Portugal and Spain

United Kingdom, Denmark and Sweden are members of the European Union but not the Eurozone.

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Euro Time Line

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January 1, 1999

  • Euro is THE currency of eleven countries

  • Conversion rates irrevocably fixed

  • Legislation on the euro entered into force

  • Financial markets in euro

  • ECB starts operations

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August 30, 2001

  • European Central Bank releases final details of euro banknote designs and features to the media and public at a news conference in Frankfurt, Germany

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Euro Notes

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Euro Coins

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September 1, 2001through December 1, 2001

  • Belgian, French, Irish, Italian, Portuguese, Finnish Greek, Dutch, commercial banks begin receiving euro coins and bank notes

  • These countries retailers begin receiving euro coins as well

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December 17, 2001

  • Austria, Finland, Germany, Ireland, the Netherlands, and Portugal begin making euro coins available to the public through starter kits. Greece has not made a decision on releasing starter kits

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December 31, 2001

  • German national currency ends as legal tender but under an agreement, deutsche marks can still be used until at least February 28, 2002

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January 1, 2002

  • “E-day” or Euro Day” when euro banknotes and coins will be brought into circulation in the 12 participating states of EU. All non-cash transactions will hereafter take place in euros. All currency issued by participating national banks and ATMs will be new euro banknotes and coins. Dual circulation period begins, in which consumers can still use national currencies but will be given change only in euros

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January 28, 2002 through February 28, 2002

  • 12 participating countries end their national currency as legal tender.

  • German commercial banks will exchange national banknotes and coins for euros until at least this date. Commercial banks in Austria, Finland, Greece, and Ireland decide individual deadline for currency exchanges. Italy had not made a decision on commercial bank currency exchanges

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June 30, 2002

  • Last date commercial banks in France, Luxembourg, Portugal, and Spain will exchange national currencies for euros.

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December 31, 2002

  • Last date commercial banks in Belgium and the Netherlands will exchange national currencies for euros

  • Last date Portugal’s central bank will exchange national coins for euros

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2003 and Beyond

  • The 12 eurozone central banks have set various deadlines for exchanging old national currencies

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Advantages to joining the EMU

  • European countries saw the adoption of the Euro as a way of creating world wide competition

  • Integrate the European nations makes the union a strong world power

  • World Balance

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Advantages to joining the EMU

  • Strengthen Banking System

  • European Central Bank would provide an institution of monetary regulation comparable to the FED

    Ex) 6 member Executive Board of the ECD acts much like the US 7 member FED reserve board

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Advantages to joining the EMU

Ex) 11 central banks of European nations imitate action of the 12 FED reserve banks

  • Similarities between the European and United States banking system

    Ex) with a unified currency the Euro could compare in strength to the dollar

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Advantages to joining the EMU

  • The Euro would advance one’s international trade

  • Way to challenge the power of the US in foreign exchange

  • Inspire exporters to denominate their goods in euros as well as dollars

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Advantages to joining the EMU

  • Company can create individualities with different prices

  • Single Monetary Policy

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Disadvantages to joining the EMU

  • Introduction of a single monetary policy among 12 individual national policies of each country

  • Before joining the country controlled it’s own money supply

  • Monetary decisions with economic and national policies unique for the circumstances of the country

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Disadvantages to joining the EMU

Ex) Monetary policy for France and Germany could prove very costly for Spain and Portugal

  • Surrender their individual policies on inflation,unemployment, and economic growth

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Disadvantages to joining the EMU

  • Implementation of one Monetary policy as a detriment to their existing financial statuses

    Ex) One country whose main concern with the inflation rate would be reluctant to tolerate decreasing interest rates

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Disadvantages to joining the EMU

Ex) Countries maintained individual monetary policies that corresponded to their financial and national status for thousands of years

  • Traveling around different countries will have different prices for the same good or services

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Public Opinion Poll

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Three key areas of law breaking with the arrival of the euro are robbery, counterfeiting, and money laundering

The 500 euro bill, is worth more than the most expensive note in 11 of the 12 euroland currencies and has been nicknamed the “gangsters’ note”

This new note makes it possible to pack more than 7 million euros in average brief case

Single currency makes it harder to catch money launderers

63 % more fake marks were pulled out of circulation in the first three months of 2001 compared to 2000

The Police Challenge

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The Banks started moving into Euro notes and coins on September 1, 2001

The Euro became legal tender on January 1, 2002 or also known as “E-day”.

The denominations will be 5 euros, and 8 different coins.

They will look slightly different in each country.

Credit and debit cards wont be effected by the change.

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Scenario for an EMU Collapse

  • Recession develops in part of Europe.

  • Creates a conflict of interest between the weak and strong economically countries.

  • Weaker countries want low interest rates and wouldn’t mind some inflation whereas other stronger countries , such as Germany, are dead set on keeping prices very stable.

  • Cant deal with “asymmetric shocks” like the United States can due to labor mobility.

  • Downward price stickiness could lead to a higher average unemployment rate then if countries could pursue separate monetary policy

  • In the end you get a political argument and even a financial crisis, as markets discount the bonds of weaker European governments.

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Sovereignty of the Country

Sovereignty is the main reason why the UK has not joined yet.

They believe that giving up the national currency is the same as giving up national sovereignty.

Is the Euro leading to ONE European super state?

Monetary union will end the a nation’s ability to conduct monetary policy, ONE interest rate?

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European Central Bank

The ECB is the successor of the European Monetary Institute that was set up 5 years ago.

ECB works hand and hand with national central banks that are within the European system.

They have the exclusive right to authorize the issue of banknotes.

The volume of money is approved by the ECB not central banks.

Considered a double of Germany’s central bank, Bundesbank.

The ECB is headed by Wim Duisenberg.

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Current Situation in the Eurozone

April 11, 2002:

The European Central Bank has stated that high oil prices could lead to slightly higher inflation than predicted.

Believe that the recent jump in prices will contribute to the recovery of the Eurozone and would begin to slow in speed (negative supply shock).

Oil prices spiked above $27 due to fears of increased violence between Israel and Palestinians.

Eurozone inflation at 2.5% in March, and the rate is still falling but not by as much due to the oil price increase.

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