100%(2)2 out of 2 people found this document helpful
This preview shows page 39 - 46 out of 77 pages.
•Today the country of Turkey has been making overtures for admission into the European Monetary Union Ch 8 - RTA39
The European Union- European Union as a monetary union •Essentially the European Union (EU) jumped from the (quasi) Common Market stage, bypassed the Economic Union stage, to a Monetary Union (the EMU)•Countries joining the European Union are obligated to eventually join the EMU•Countries in the EU are obligated to adopt the Euro as their national currency (according to terms of the 1991 Maastricht Treaty creating the Euro)Ch 8 - RTA40
The European Union- European Union as a Monetary Union •Membership is not automatic as Common Market members must first satisfy the convergencecriteria as mandated by the Maastricht Treaty(1991)•At the Maastricht (Netherlands) Summit of 1991 the Maastricht Treaty (formally, the Treaty on European Union) was hammered out as an agreement to replace EU central banks by 2002 and replace their national currency with the Euro.Ch 8 - RTA41
The European Union- Maastricht Treaty Convergence Criteria – EMU•Price stability (no more than 1½ percentage points above average of the three nations with lowest inflation)•Low long-term interest rates (no more than two percentage points above the three nations above)•Stable exchange rates (must be within a target band established by the EMU with no devaluations for two years prior to joining)42Ch 8 - RTA
Ch 8 - RTA43Advantages and disadvantages of adopting a common currencyTABLE 8.3AdvantagesDisadvantagesThe risks associated with exchange fluctuations are eliminated within a common currency area.Costs of currency conversion are lessened. The economies are insulated from monetary disturbances and speculation.Political pressures for trade protection are reduced.Absence of individual domestic monetary policy to counter macroeconomic shocks.Inability of an individual country to use inflation to reduce public debt in real terms.The transition from individual currencies to a single currency could lead to speculative attacks.
The European Union- European Union as a Monetary Union •At present the Euro is the official currency of 16 of the 27 member states of the European Union•The 16 Euro Zone nations: - Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and SpainCh 8 - RTA44
The European Union- The Euro•Also used in five other European nations as a reserve currency. A reserve currencyis one that is accepted/used by other countries to settle international debts resulting from trade.•The Euro is used daily by some 327 million Europeans•Over 175 million people worldwide use currencies that are pegged to the Euro (as a reserve currency).