European Union• Established in accordance with Masstricht Treaty
(1993)
• 27 countries– Motto: Unity in Diversity
• Four Freedoms– People– Goods– Services– Capital
Eurozone• Objectives
– Price Stability– Financial Stability– Financial Integration
• 16 participating countries– Austria, Belgium, Cyprus, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain
• Eight more countries will be inducted when they meet the criteria
Criteria• Inflation
– No more than 1.5 percent higher than average of the three lowest members
• Government Finance– Ratio of gov. defecit to GDP may not exceed 3 percent– Ratio of gov. debt to GDP may not exceed 60 percent
• Exchange Rate– Must be a member of ERM II for two years
• Interest Rates– Long-term rate cannot be more than two percent higher
than three lowest inflation members
Eurosystem• Governing monetary authority
• Price Stability; Financial Stability; Financial Integration
• European Central Bank (ECB)– Manages & administers euro
• National Banks– Prints, mints, and distributes notes and coins
The Euro• Non-physical release on January 1, 1999• Rates were locked in the day before• Actual notes and coins released January 1, 2002
• Epsilon– Double strikethrough denotes stability
• Placement of the sign isn’t definitive
A Few Benefits
• Low Inflation Rates
• Ease of Trade
• Governmental Influence
• International Risk Sharing
