Henry Kirse & Danielle Briggs. WWII destroyed political and economic systems in Europe 1946...

Henry Kirse & Danielle Briggs

WWII destroyed political and economic systems in Europe

1946 Bretton Woods Agreement Created the International Monetary Fund Replaced gold with US dollar

1957 Treaty of Rome Created European Economic Community▪ Fluctuating Exchange Rates

“Nixon Shocks” 1971 President Nixon moved the US dollar

away from the gold standard This ended dollar convertibility and the

fixed gold exchange rate of $35/ounce Motivated the European Economic

Community to create a monetary system not dependant on the US dollar.

European Currency Unit Composite currency used for

transactions 4.5% Barrier to exchange rate

European Monetary System Allowed only minor fluctuations in

exchange rates between European Countries

Treaty of European Unity, 1992 Maastricht, Netherlands Dictated that a monetary union would be

implemented by 1999 Called for a common monetary and

economic policy among member nations Created the European Central Bank▪ Located in Frankfurt, Germany▪ Administers Monetary Policy

1. Inflation rate: No more than 1.5 percentage points higher than the three lowest inflation member states of the EU.

2. Government finance: Annual government deficit: The ratio of the annual government

deficit to GDP must not exceed 3% Government debt: The ratio of gross government debt to gross

domestic profit not exceed 60%.

3. Exchange rate: Applicant countries should have joined the exchange rate mechanism under the EMS for 2 consecutive years and should not have devaluated its currency during the period.

4. Long-term interest rates: The nominal long-term interest rate must not be more than two percentage points higher than in the three lowest inflation member states.

January 1, 1999 11 countries adopted the common

currency Locked in national currency rates

against euro

January 1, 2002 Physical Currency Issued 12 countries adopted single currency

11 beginning countries has expanded to 16

As of November 2008 €751 billion in circulation Roughly $953 billion

EuroZone is the 2nd largest economy in the world

At implementation exchange rate was $1.17 to € 1.

Lowest rate occurred October 27, 2000 $.8229 : € 1

Since 2002, Euro has not dipped below $1

Current US dollar to Euro exchange rate March 10, 2009: $1.27 : €1

Enacted by Treaty of European Unity, 1992

Economic Requirements to participate

Currency implemented January 1, 1999 Physically distributed January 1, 2002

Relatively stable exchange rates Since 2000, above $1: €1