The Euro has not been a failed

experiment...
Yichun Chen, Kelsey Myatt, Jenna Ruth Lang

History of the Euro

Adopted: 1995
Introduced : January 1, 1999 at 1=$1
Largest currency by notes/coins in circulation second largest (after $) reserve
currency
Used in 19 of the 28 member states of the European Union
Used by 334 million European and another 210 million elsewhere including over
180 million in Africa
Administered by the Frankfurt-based European Central Bank (ECB) and the
Eurosystem

Eurozone

1992
1999 1.1
2002.1.1
2007 1.1 2008 1.1 2009 1.1 2011 1.1 2014 1.1 2015 1.1

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Current State of the Euro

According to the EURO Commission
The euro () is the official currency of 19 out of 28 EU member countries (widely used in third countries
and regions neighbouring the euro area, for example in South-eastern Europe and other countries like
Andorra, Monaco, San Marino and the Vatican City)
-

The euro is widely used, alongside the US dollar, as an important reserve currency to hold for
monetary emergencies. In 2015, more than one-fifth of the global foreign exchange holdings were
being held in euros

The euro is also the second most actively traded currency in foreign exchange markets. It is a
counterpart in around 33% of all daily transactions, globally.

Strength of a Single Currency

A single currency is a logical complement to the single market and contributes to making it more efficient

Benefits of single currency

increasing price transparency
eliminating currency exchange costs
facilitating international trade
The size and strength of the euro area also better protect it from external economic shocks, such as
unexpected oil price rises or tax
More choice and stable prices for consumers and citizens
Greater security and more opportunities for businesses and markets
More integrated financial markets
A stronger presence for the EU in the global economy
A tangible sign of a European identity

Ensure Price Stability

Independent European Central Bank (ECB) controls monetary policy
(including the printing of the EURO)
Maintain stability of prices and ensure value of EURO is trusted
ECB sets and adjusts interest rates for ECB lending
Fiscal policy is controlled by each individual national government

Inflation Controls
ECB attempts to maintain inflation rates at just under 2%.
Pick the 2% threshold based on the idea that it was low enough for
consumers to benefit from price stability.
In the 1970s and 1980s prior to the EURO many EU countries had inflation rates reaching
20%, but since the introduction of the EURO inflation has remained around 2%

Inflation rates 1980s

Graph of Euro Inflation Rate

Greece Debt Crisis

Caused by government action not introduction of the euro
Greeces Public spending and debit extremely high
-

according to figures from the Organization for Economic Cooperation and Development (OECD), the
budget deficit increased from less than 3 percent in 1981, the year Greece became the tenth member
of the European Community, to 11 percent in 1991

The government's plan caused a deep and prolonged recession (2.3 percent in the first trimester of
2010) coupled with significant social upheaval as the cuts spread beyond the public sector to private
companies

Economic difficulties were worsened by political developments

rise to populist reactionary parties, Euro-skepticism, and nationalism, making the implementation of further
austerity programs more difficult.
-

Three Rounds of austerity programs that failed

When a country adopts an austerity package of such magnitude it needs some form of relief. The drop
in purchasing power coupled with medium-term inability to spend on much-needed educational and R
& D infrastructure means the country solves its immediate problem by allowing a bigger one to fester.

Greece Unable to Find Balance in Eurozone

Entry into the eurozone precipitated the decline because the
government gave up currency devaluation as a tool of competitive
adjustment.
-

suffered from having an overvalued currency

adversely impacted their export industries and also the tourist industry and, worst of all, increased their
costs across all fields

EU's lack of ideas, indecisiveness, and institutional incapacity fueled

uncertainty, driving up costs and precipitating the very outcome almost
everyone was trying to avoid sovereign default (structural elements
beyond the Euro need fixing )

A Story of Frustration, not of Failure

Throughout the current crisis, the value of the Euro remained relatively stable.
-

though the Euro lost nearly 20 % of its value against the US dollar between April 2010 and October 2012, it
remains far more valuable than higher from its lowest point in October 2002

Evolution of exchange rate of Euro (20022008)

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Euro Still has Chance for Success

The fact that Greece, after default, will stay in the Eurozone will reiterate the value of
solidarity in European integration, making void any stipulation that EU or Eurozone might
collapse
The Euro has overall delivered Monetary stability on time of economic shock , Large decline
against the dollar, only to rebound

Need For Change

-EU and Eurozone needs to launch a new political discourse capable of winning back popular support for
further integration
- Europe has not followed up euro with complementary policy reforms to ensure success
- If the euro was to taken out of currency risks a EU breakup and muddling through carried political risks.
- Rendering Europe even less able to cope with the myriad of challenges facing it.

Stability and Growth Pact

Originally introduced in 1998 provided the governing regulations and
laws given to the European Central Bank and laying out guidelines to
enforce EURO regulations.
After the financial crisis of 2009 the Stability and Growth pact was
strengthened in 2011 with new legislation aimed at preventing another
financial crisis.
Governments must ensure their yearly deficits do not exceed 3% of their total GDP.
Governments must ensure their debts do not exceed 60% of their total GDP .

More Rules and Regulations

European Semester (since 2010): yearly coordination of economic
policies between EU and national governments.
Fiscal Compact (2012): countries commit to having their budgets in
balance
European Stability Mechanism (2012): European Emergency fund to
help when a country encounters excessive debt and cannot borrow from
the financial markets.

Consequences of not following rules

If European Commission finds that an EU country has broken the
regulations as outlined by the Stability and Growth Act it can:
Recommend the country submit a detailed plan that states how it will bring itself out of
debt/deficit levels which exceed the EU standards.
Financial penalties for EURO area countries if they fail to meet the standards.
However, with Stability and Growth Pact 2012 reforms there is a concerted effort to
take into account each individual countrys needs rather than blindly assessing fines and
sanctions.

References
Ciminera, Sabrina and Richard H.K. Vietor. European Monetary Union. Harvard Business
School. (May 4, 2001). Harvard Business School Publishing.
Fisher, Richard W. The Extended Importance of the Euro. Remarks before the European
Banking Congress. (November 17, 2006). Retrieved from
http://www.dallasfed.org/news/speeches/fischer/2006.
Hungdah Su,Is the Euro Still a Success Story? An Asian Interpretation of the Eurozone
Sovereign Debt Crisis. Asia Europe Journal, Volume 11, Issue 2, (June 2013) pp 179188
The EU explained: Economic and Monetary union and the euro. (November, 2014),
European Commission. Luxembourg Publications Office. Retrieved from
http://www.europa.eu/pol/index_en.htm.