The Changeover to the EURO

1
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!

2
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.

3
(No Transcript)
4
Euro Time Line
5
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

6
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

7
Euro Notes

8
Coins
9
Euro Coins
10
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

11
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

12
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

13
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

14
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

15
June 30, 2002

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

16
December 31, 2002

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

17
2003 and Beyond

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

18
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

19
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

20
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

21
Advantages to joining the EMU

• The Euro would advance ones 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

22
Advantages to joining the EMU

• Company can create individualities with different
  prices
• Single Monetary Policy

23
Disadvantages to joining the EMU

• Introduction of a single monetary policy among 12
  individual national policies of each country
• Before joining the country controlled its own
  money supply
• Monetary decisions with economic and national
  policies unique for the circumstances of the
  country

24
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

25
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

26
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

27
Public Opinion Poll
Country Pro-euro Against
Austria 59 32
Belgium 75 18
Denmark 40 56
Finland 49 46
France 67 28
Germany 53 38
Greece 72 22
Ireland 72 16
Italy 83 12
Luxembourg 81 15
Netherlands 66 30
Portugal 59 30
Spain 68 22
Sweden 29 62
UK 25 57
EU Overall 59 33
28
The Police Challenge

• 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

29
E-DAY

• 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.

30
(No Transcript)
31
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
  wouldnt 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.

32
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 nations ability to
  conduct monetary policy, ONE interest rate?

33
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 Germanys central bank,
  Bundesbank.
• The ECB is headed by Wim Duisenberg.

34
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.

35
javascriptopenWindow('/interactive/specials/0108/
euro/currency.coverter/frameset.exclude.html','win
downame','toolbarno,locationno,directoriesno,st
atusno,menubarno,scrollbarsyes,resizableno,wid
th510,height390')