The euro - general information

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1 The euro - general information 2001 History was made on 1 January 1999 when eleven European U countries (later to become thirteen) irrevocably established the conversion rates between their respective national currencies and the euro and created a monetary u with a single currency, giving birth to the euro. A transitional period followed where the euro only existed as book money, and on 1 January 2002, euro banknotes and coins were put into circulation. Twelve countries (Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland) started using euro banknotes and coins when they first entered circulation on 1 January The three steps of enlargement: 1999, 2001 and 2007 Euro area EU Member States with an opt-out EU Member States that have not yet adopted the euro In 2007, Slovenia was the first of the ten countries that joined the EU in 2004 to join the euro area. Within the euro area, there is one institution, the European Central Bank, which is in charge of conducting monetary policy with a view to ensuring price stability. Member States continue to be in charge of their economic policies but must coordinate them to ensure that and Monetary U functions smoothly.

2 2 The key players The European Commission proposes Community (or EU) policies and legislation and monitors their implementation. Proposals relating to and Monetary U (EMU) are prepared by the European Commission s Directorate-General for and Financial Affairs, under the responsibility of the Commissioner for and Monetary Affairs, Joaquín Almunia. The Council of the European U ( the Council ), which is made up of representatives of EU Member States' governments, decides on and adopts Commission proposals. When matters relating to EMU (with the exception of monetary policy) are under discussion, the national ministers of finance and economic affairs gather as the ECOFIN Council, which constitutes the forum for the coordination of national policies. Summit meetings of Heads of State or Government, known as the European Council, set the overall political direction for European decision-making. The Eurogroup is an informal body composed of the finance ministers of euro area Member States and the European Commission. The ECB also participates in Eurogroup meetings by invitation. The Eurogroup discusses topics of common interest for all euro area Member States, like the economic situation or exchange rate developments. The European Parliament, whose members are directly elected, is consulted on legislative proposals, and in many areas also shares the power to adopt legislation with the Council of the European U. ECON is the European Parliament's standing committee on economic and monetary affairs. The European Central Bank (ECB) is the keystone in the European System of Central Banks (ESCB), comprising the national central banks of all EU Member States. The national central banks of the euro area plus the ECB make up the Eurosystem. The ECB is independent of political influence and conducts the monetary policy of the euro area with a mission to maintain price stability.

3 3 The key policies Monetary policy concerns the management of the supply of money in an economy, for example by printing money or setting interest rates. The ECB is in charge of drawing up and implementing the monetary policy of the euro area. Fiscal policy concerns the management of government revenues (e.g. taxation) and expenditure (e.g. spending on healthcare). Sound public finances are particularly important for the smooth working of EMU. Fiscal policies remain the responsibility of the Member States but are coordinated at EU level, notably through the Stability and Growth Pact. Exchange rate policy The European Central Bank is in charge of conducting foreign exchange operations and managing the euro area s exchange reserves. The Council has the right to conclude formal exchange rate agreements or to give general orientations for exchange rate policies. The responsibility for euro area economic policy remains largely with the Member States, although the EC Treaty requires them to coordinate their economic policymaking with a view to achieving the objectives of the Community. This coordination is ensured through the Commission and the ECOFIN Council. There are a number of structures and instruments that underpin coordination such as the Eurogroup, the Stability and Growth Pact and the Integrated Guidelines. The Lisbon Strategy also called the Growth and Jobs Initiative adopted by the EU in 2000 and revamped in 2005 aims for an innovation-friendly, modern Europe which creates growth and jobs for its citizens through the formulation of various policy initiatives to be taken by all EU Member States and by the EU itself. The broader objectives set out by the Lisbon Strategy are intended to be attained by The main fields are economic, social, and environmental renewal and sustainability. The Lisbon Strategy is heavily based on the economic concepts of: Innovation as the motor for economic change The learning economy Social and environmental renewal The rationale of the strategy is to create a stronger economy that will drive job creation in the EU, alongside social and environmental policies that ensure sustainable development and social inclusion, which will themselves drive economic growth even further.

4 4 First steps towards a European economic and monetary u 1950s The young have little pocket money. They tend to dress like their parents and listen to the same music on the radio or record player. Boys have short hair, girls have medium to long hair styled like their mothers. 1960s Blue denim jeans appear as fashion wear. Later, the first miniskirts are seen and hair is worn longer as young people begin to dress very differently from adults. The word denim comes from de Nîmes, or from Nîmes the French town where the material was produced in the 17th century The first man in space is Yuri Gagarin. Getty Images and monetary u 1957 The founding treaty of the EU, the Treaty of Rome, identifies the convergence of economic policies as an important contribution to promoting stability, a rising standard of living and closer relations between the Member States The Prime Minister of Luxembourg, Pierre Werner, proposes a three-stage process towards EMU and a single currency at a summit meeting in The Hague. The Member States adopt the Werner Plan in 1971, which foresaw the creation of a monetary u by The six founding members of the European U each have their own currency: Belgium (Belgian franc), Germany (mark), France (French franc), Italy (lira), Luxembourg (Luxembourg franc), and the Netherlands (guilder). 1960s The Common Agricultural Policy is adopted to ensure secure and stable food supplies by supporting producers in the agricultural sector. Sicco Mansholt, Vice-President of the Commission of the European Community in charge of Agriculture, considered as father of the Common Agricultural Policy

5 5 Instability and economic disruption 1975 The European Space Agency (ESA) is formed to conduct independent space missions. Ariane 1, the first ESA rocket, is launched on Christmas Eve 1979 with a payload of communications satellites. 1980s Pop stars with flared trousers, platform shoes and long hair are a big influence on fashion. Girls wear hot pants, and punks with their spiky dyed hair and craze for body piercing make their first appearance. ESA 1972 Adopting an exchange rate mechanism (ERM) called the snake in the tunnel, the Member States fix their currencies against the US dollar to reduce exchange rate volatility and thereby to improve economic stability and give a new impetus to EMU. However, the snake is soon abandoned following the economic disruption caused by the oil crisis. and monetary u 1979 The European Monetary System was created to limit fluctuations between European currencies. The ECU (European Currency Unit) was created as a unit of account Denmark, Ireland and the United Kingdom join the European Community, adding the Danish krone, the punt and the pound sterling to the currency basket. Political turmoil in the Middle East sparks the first oil crisis, causing worldwide economic and social disruption On the initiative of Jacques Delors, the Single European Act enters into force, preparing the ground for the free movement of goods, services, capital and people. The deadline for completion of the single market is set at 1992.

6 6 Re-establishing economic stability 1980s Jeans, trainers and T-shirts are in all teenagers wardrobes. Girls start to show a little midriff, body piercing is common and small tattoos are popular. The young are more style-conscious than ever Tim Berners-Lee, a scientist working at the European Organisation for Nuclear Research (CERN), invents the World Wide Web, a system for finding and sharing information across the internet. Talk Talk and Duran Duran pop music groups and monetary u 1989 In Madrid, European leaders agree to President Delors three-stage timetable for the introduction of economic and monetary u, with a European Central Bank to manage the single currency The European Council adopts the Maastricht criteria the rules for adoption of the euro, so-called because it was the Maastricht Treaty (Treaty on European U), signed in 1992, which set out the blueprint for EMU. They place economic constraints on governments in order to ensure sufficient economic convergence is achieved before establishing (and subsequently enlarging) the single European currency area. The Broad Policy Guidelines (BEPGs) are adopted as a reference document guiding the conduct of the whole range of economic policies in the Member States and the European U Greece and the drachma join the EU (at that time still known as the European Community or EC). The ancient Greek drachma lives on today in its Athenian owl symbol which features on Greek one-euro coins Spain and Portugal join the EU bringing its membership to 12 and adding the peseta and the escudo to the growing currency basket. Signature of the Act of accession of Spain to the European Community by Felipe González (on the right), and Fernando Morán López (on the left)

7 7 Emergence of the largest integrated trading bloc in the world 1990s Home computers run at several hundred MHz and dial-up internet connections are spreading. becomes common and video games take off. There are 24 million web servers worldwide by the end of the decade Low-cost airlines bring frequent air travel within the reach of many more people boosting tourism and travel throughout Europe. IBM and monetary u 1995 The European Council meeting in Madrid announces the name of the future European single currency the euro to be launched on 1 January The Stability and Growth Pact is agreed at the Amsterdam European Council The independent European Central Bank is founded in Frankfurt Soviet President Mikhail Gorbachev helps to remove the barriers that divide Europe. The Iron Curtain is drawn back as Hungary opens its borders to Austria and the Berlin Wall comes down reuniting Europe Austria, Finland and Sweden join the EU bringing its membership to 15 and adding the schilling, the markka and the krona to the growing currency basket The Schengen area, abolishing border controls among its members and first agreed in the Luxembourg town of Schengen in 1985, is extended to 13 countries in the Treaty of Amsterdam. Much of the EU now has a single external border and people, including non-eu nationals, can move freely around the Schengen area.

8 8 The largest monetary changeover in history 2000 The EU and ESA launch a European Space Strategy for the exploration and the exploitation of space. 2000s Home computers run at gigahertz (GHz) speeds and fast broadband internet connections are spreading throughout Europe. Mobile phones have more functions such as digital cameras, and are becoming fashion accessories. Digital MP3 music players with miniature hard disks can download music from the internet and store many thousands of tracks in a single handheld device a lifetime s high-sound-quality music in your pocket. Getty Images ESA 1999 The euro is launched in 11 EU Member States forming the euro area. It takes over the role of the ECU (European Currency Unit). The ECU was a composition of the different national currencies, weighted according to their part in EU external trade and their GDP (gross domestic product). Euro banknotes and coins are not available yet euro cash is only introduced three years later. Denmark and the United Kingdom have special derogations in the original Maastricht Treaty on European U. Neither country is legally required to join the euro area. Greece joins the euro area in A new year and a new currency. The largest cash changeover in history takes place as euro coins and banknotes replace the national currencies of the euro area. The new euro is the crowning achievement of decades of work towards EMU The new Member States are to adopt the euro as soon as they meet the Maastricht convergence criteria. For these countries, the single currency is part of the package of European U membership unlike the UK and Denmark, they have no possibility of opting out". and monetary u 2007 Slovenia is the first of the new EU Member States to adopt the euro The Heads of State and Government of the EU launch the Lisbon Strategy a series of ambitious reforms to make the European U the most dynamic and competitive knowledge-based economy in the world by A terrorist attack destroys the New York World Trade Center, bringing a change in stance towards international terrorism in the world and new challenges for European politics The European U now numbers 25, welcoming the Czech Republic (Czech koruna), Estonia (kroon), Cyprus (Cyprus pound), Latvia (lats), Lithuania (litas), Hungary (forint), Malta (Maltese lira), Poland (zloty), Slovenia (tolar) and Slovakia (Slovak koruna) Bulgaria (lev) and Romania (leu) join the European U.