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45-handout - A2 Economics The Single European Currency Key...

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1 A2 Economics The Single European Currency Key Issues • The essentials of Euro Area membership • Convergence criteria • Optimal currency area theory • Recent macro performance of the Euro Area • Single currency membership and external shocks • The crisis for some Euro Area members
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2 Basic history of the Euro Project • 1991: Maastricht Treaty – pathway for Euro • 1999: Euro starts life as a currency • 1999-2001: Original members of system lock their currencies for two years • 2002: Notes and coins come into circulation • 2007: Slovenia becomes first of the new member states to enter the currency union • 2008-09: Three new nations – Slovakia, Cyprus and Malta – the Euro Area extends to 16 nations • 2009-10: Major stresses in the Euro as a fiscal crisis engulfs a number of member nations The Euro Zone in 2006 – 12 Baffling Pigs B elgium A ustria F rance F inland L uxembourg I taly N etherlands G ermany P ortugal I reland G reece S pain
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3 The Euro Zone in 2010 – 16 Members B elgium A ustria F rance S lovenia S lovakia F inland L uxembourg I taly N etherlands G ermany P ortugal I reland C yprus M alta G reece S pain UK, Denmark and Sweden are all outside of the Euro Euro Essentials • Monetary union is a deepening of economic integration between participating countries A single currency requires a common interest rate for the Euro Zone – i.e. a common monetary policy • Countries have locked their currencies together forever and adopted one currency as a medium of exchange • Euro as a currency floats against US dollar and sterling •Member nations are also required (in principle) to keep control of government borrowing i.e. They are not allowed to run large budget deficits > 3% of their GDP (in normal times)
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4 Britain & the Euro – The Current Position Britain is outside of the Euro Zone It has an ‘opt out’ from the single currency The European Central Bank (ECB) • ECB sets policy interest rates for the sixteen
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

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45-handout - A2 Economics The Single European Currency Key...

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