The Euro

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A family taking a vacation over breaks is quite common for people of the United States. Taking a drive cross-country, a family will typically stop at a hotel along the way to rest before continuing the trip to the desired destination. Whether they are traveling from Maine to California, the currency of the dollar remains the same. But some places do not have a single currency amongst themselves like Europe. Even though the United States in one country and Europe is a continent made up of several different countries, their size is similar in comparison to the States of America. Simple drives like family vacations may lead to many different countries to pass through. This may raise problems since European countries all have their own currencies. Simple tasks as paying for gas and can be painful having to convert to their monetary unit. So many European countries have come together to form an idea of a single currency called the Euro. The start of the Euro was not something thought up a couple years ago but was started by a group called the European Monetary System (Grabbe 1). And over the course of more than twenty years this new currency has come about to its current status. This currency's effects from its beginning to the evolution of today's soon to be currency will be beneficial for the people of Europe as a whole.

The group responsible for the idea of the Euro was the European Union (EU). In 17, in an effort to help countries in the EU to have solid exchange rates, they formed the European Monetary System. The European Monetary System was designed to decrease interest rates and inflation in participating European Union countries by modeling the German's policies and currency of their monetary system. To measure whether a country's inflation and exchange rate did not go too far in either direction they created the European Currency Unit. A currency to which member countries can

measure up so they did not go too far in either direction of their fixed rate (Grabbe 1). A few years later in the 180's the member states of the European Union made another step in the process by canceling restrictions amongst themselves in the area of goods, services, capital, and people by the year 1. So to do this a man named Jacques Delors, president of the EU, he came up with the idea of a European Monetary Union. This brought upon an important step in the process of the single currency when the EMU was accepted with the neighboring countries. This came to be known as the Maastricht Treaty of 1 (Solomon ).

With the new treaty of Europe made and a specific schedule for the currency to be made effective, not every country for certain reasons such as their economy or other varying thoughts for the currency can participate in the euro. So the board members of the Maastricht Treaty set specific criteria to join. The first section was countries price stability. Which means they cannot go beyond the top Member State's inflation rate of 1.5%. The next step that is evaluated the Gross Domestic Product (GDP) of the nation. They may qualify if the deficit of the government has three percent to the GDP. As the European Monetary System looks at possible new members, they want some security that the country that they allow in is stable in their economy. That is why they insist that for two years their currency does not fluctuate where that country would devalue the other countries that are members of the Euro system. To measure this the EMS set an Exchange Rate Mechanism to measure the fluctuation. Lastly, the final examination the EMS has for looking at the member countries in The Maastricht Criteria is deals with their interest-rate. For the price-stability, the EMS asks that they have a long-term rate that does not fluctuate for than % of the top performing Member States (Antweiler 4).

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Now knowing the stipulations of how the Maastricht Treaty, the EMS broke down how to get to the conversion period of the euro in three steps. The first step was to remove all restrictions on capital between all participating countries. The second step was to start a European Monetary Institute. This group (based in Frankfurt, Germany) was created to be the holder of reserves of gold and foreign exchange, supervise the work of the European Monetary System while trying to increase the use of the ECU. The last step composed from the treaty is when countries will finally fix their currencies to the euro in a span of three years (1-00). During this period currencies will slowly come out of circulation and accounts will slowly turn to the single currency of the Euro (Grabbe ).

To get a better idea of the steps of how the Maastricht treaty worked, a Time Table was created to meet deadlines to reach the single currency. In early May of 18, the official bilateral exchange rates will be announced along with the eleven members of the euro who met the requirements and made the choice to except the invitation to join the euro currency (Antweiler 1). These countries to join the single currency are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, Netherlands, Spain, and Portugal (Antweiler 6,7). In June 0, 18, the European Monetary Institute will fall as the result of the induction of the European Central Bank. The next big step the euro is the start of "Conversion Weekend". This is when the rates of conversion among Member State's currency and the euro will be once and for all be set. And in only a few hours on the new year of 1 the euro becomes the official currency. But the currency is not yet in the form of cash or coin, but will be in other forms. The foreign exchange will be dealt in the form of the euro, public debt will be changed, and stock exchanges with be read as euros (Antweiler 1,). Then after not being allowed originally in 18 to join, Greece will be the twelfth country to join the euro group. The next step for which we will see in just a few weeks is the beginning of euro banknotes and coins come into circulation on the New Year (Antweiler ). Euro10 billion coins and notes will be delivered to banks and retailers in preparation for the start of trade (Economist 1). The national "E-Day" starts the dual circulation of all the nations current currency and the euro (Antweiler ). People will be able to take euro notes from the bank and be able to spend on the New Year (Economist 1). And one month later on February 8, national currencies of Member States will be canceled leaving the euro as the sole form of currency (Antweiler ).

With the schedule of the euro coming into circulation, the groups formed to help make with possible, and all the financial criteria made to qualify for the euro, there are many aspects of this currency that those countries have to look at. As the many European countries are doing this for a great amount of benefits, there are just as many problems that come along with joining the new currency. For starters is makes life much easier if anybody has contact with a country outside his or her own. With prices, they do not have to make any calculations or change currency. This ease also helps with the confidence of buying or selling with other countries exchange rates. If they all have the same currency, there cannot be any unexpected shortfall. Shopping and many other basic purchases can be done all with the ease of one currency. And with all the countries that are members of the currency this will start to develop a sturdy economy through the EMU (Euro and You 1). This strength of having a solid currency can enable them to compete with some of the most powerful currencies in the world. It will soon be able the second most powerful currency sandwiched under the United States dollar and in front of the Japanese Yen (Antweiler 8).

Since the euro will be in competition with other currencies, it will have an effect on the world economy. If the euro slowly develops into the superpower it is told to be, like the United State's dollar, the euro will become a significant reserve currency. It will be able to supply euros to countries outside to EMU therefore strengthening its use and power. Some say this would hurt the Untied States economy but the lack of political integration will keep them from being involved outside the EMU (Soloman 4,5).

This brings up a side that shows the negative side of using the single currency. The euro has no political union and that may damage their system. This can create damage if countries try to join the euro without following the guidelines. If their currency does not fit the system of the euro it can be devalued (Euro and You 1). Since every country is now dependent on each other, if one country goes into a recession, it will affect everybody. Usually a country will lesson the value of their currency and increase exports. But now that they are all using the same currency, they can no longer do that (Antweiler 8).

But some of the more immediate effects that will hit close to home. Yes many people will have the ease of not having to covert currencies or compare exchange rates, but this currency may reduce jobs. With the increase of trade, some companies will not be able to contend due to labor expenses (Euro and You 1). Even with the loss of jobs, if the value of the euro can compete like stated earlier the economies would strengthen. If this is apparent then different jobs will open up and sudden loss early can make a recovery.

After looking at both perspectives of the euro both good and bad I feel that it will have an overall positive impact on the European nations. Yes, the currency will run into some problems along the way. A lack of political union can take a toll or unemployment may take a toll at the beginning. After these growing pains this currency will strengthen its power within the twelve nations and have a good economy. Trade will much more obtainable and there will be no restrictions to keep these Member States from trading from each other. Then the drive from Germany to Belgium to Portugal to visit relatives over Christmas will a lot less painful.

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