The Euro

The Euro: Europe's Common Currency

Table of Contents

Abstract 3

The Maastricht Treaty 4

Why A Common Courtesy? 5

The Implementation Of The Euro 6

Versus The Dollar 7

International Impact 8

Potential Problems 9

European Union Expansion 11

Personal Experience 13

Conclusion 14

References 15

Abstract

On 1 Jan 2002, the euro became the legal currency for over 300 million people living in Europe. In this paper I will detail how the euro came to be and the planning that was needed to undertake such a huge project. I will also discuss the euro's impact against the U.S. dollar as well as its current and potential impact on international business. Finally, I will explore the possiblity of euro expansion on the international business scene.

The Euro: Europe's Common Currency

The Maastricht Treaty

For hundreds of years Europe was the scene of many frequent and bloody wars. For example, in the period 1870 - 1945, France and Germany went to war against each other three times and many European leaders believed that the only way to secure Europe with a lasting peace was to unite them economically and politically. So, in 1950, French Foreign Minister Robert Schuman proposed a plan to integrate the European coal and steel industries. As a result, the European Coal and Steel Community was formed in 1951 with six member countries: Belgium, West Germany, Luxembourg, Italy, France, and the Netherlands.

This group was such a success that these same six countries decided to further integrate other sectors of their economies and in 1957 the Treaties of Rome was signed. This treaty created the European Atomic Energy Community (EURATOM) and the European Economic Community (EEC). It was with the creation of these alliances that the member countries moved a step closer in removing trade barriers between them and forming a common market. Then, in 1967, the three European communities then merged and from that point on there was just one Commission, one Council of Ministers, and the European Parliament (German Embassy Online).

In 1992, the Treaty of Maastricht once again brought higher levels of cooperation between the member governments. For example, agreements were made concerning European defense and in the area of justice and home affairs. It was by adding this higher level of governmental cooperation to the existing community system that the Maastricht Treaty created the European Union (EU).

The vision of the European Union is to enhance European political, economic, and social cooperation. There are currently 25 member countries:

Belgium Germany Luxembourg Italy France Netherlands

Denmark Ireland United Kingdom

Greece Spain Portugal

Austria Finland Sweden

Cyprus Czech Republic Estonia

Hungary Latvia Lithuania

Malta Poland Slovakia

Slovenia

Why A Common Currency?

The European Union has been successful because it has delivered over 50 years of stability, peace, and prosperity. It has helped raise standards of living, built a single European market, and strengthened Europe's standing in the world. Yet, in 1992, the EU decided to go for the ultimate economic and monetary union and planned for the introduction of a new, single European currency which would be managed by a new European Central Bank.

The most obvious benefit in the adopting of a single currency was removing the cost of exchanging currency from trades which theoretically would allow businesses and individuals to consummate previously unprofitable trades. The absence of multiple currencies also removes exchange rate risks. In international business, the risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals looking to invest or trade outside their own currency. With a single currency, companies that hedge against this risk will no longer need to shoulder the additional cost. The reduction in risk is particularly important for countries whose currencies have traditionally fluctuated a great deal, particularly the Mediterranean nations (Wikipedia).

The Implementation of the Euro

The implementation of the new currency, to be called the "euro", would require years of planning and some of the key implementation milestones are highlighted below:

Euro Timeline

3 May 1998: EU agrees on 1 Jan 1999 as the date for European Monetary Union (EMU) and the birth of the euro.

2 June 1998: European Central Bank (ECB) opens for business in Frankfurt, Germany

1 Jan 1999: The euro and the EMU are born. Euro becomes legal currency in eleven EU countries (along with national currencies) but does not go into cash circulation until 1 Jan 2002.

1 Jan 2000: The euro is one year old, although it's still a cashless currency used only for

euro zone bank accounts and stock market transactions.

3 May 2000: Greece becomes the twelfth member nation in EMU.

1 Jan 2001: The euro is now two years old, but is officially one year away from going into circulation.

1 Sep 2001: Governments begin advance distribution of euro notes and coins to banks and businesses.

1 Oct 2001: All prices must now be displayed in euros and in the national currency.

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