Euro
...Istvan Magas
Central European University
Business School
Weekend MBA
Fall Semester, 2006
The free trade area called European Community was founded by six countries West-Germany, France, Italy, The Netherlands, Belgium and Luxemburg. At the end of 2006, when this essay is written there are 25 member states of the European Union. Romania and Bulgaria will join by 1 January, 2007.
The first step on the way to the single European currency was taken only in 1979, when the European Monetary System was set up. The EMS was designed to lessen variations in the exchange rates between the currencies of the member countries. The system allowed the member states fluctuation margins of between 2.25 % and 6 %. But the system was weakened by several crises caused by the instability of the USD and the weakness of some currencies.
The plan about the economic and monetary union (EMU) submitted in June, 1989, by Jacques Delors - was involved in the Maastricht Treaty, signed in February, 1992. The set of criteria laid down were all about economic and financial discipline:
inflation rate: no more than 1.5 % above the average of the inflation rate of the lowest 3 countries in the EMS
long-term interest rate: no more than 2 % above the average of the lowest 3 EMS countries
exchange rate: in the narrow band of ERM for 2 years
budget deficit: no larger than 3 % of GDP
national debt: no greater than 60 % of GDP
An independent European Central Bank (ECB) was set up, and given the task of setting interest rates to maintain the value of the Euro.
In June, 1997, in Amsterdam, the European Council adopted two important decisions (Treaty of Amsterdam). The "stability and growth pact" committed the countries concerned to maintain their budgetary discipline. They would all keep eye on one another and not allow any of them to run up excessive deficits. The second...
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