What Agreement Led To The Establishment Of The Euro A Common European Currency

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What Agreement Led To The Establishment Of The Euro A Common European Currency

20
Dec,2020

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The new coins and banknotes were first valid on the French island of Reunion, in the Indian Ocean. [22] This is where the first official purchase of euro coins and banknotes for a kilogram of lychee took place. [23] However, the midnight visit to Frankfurt in the ECB offices symbolized the transition. EMU member states will remain members of the International Monetary Fund. Although they will have abandoned their exchange rates and balance-of-payments policies, they will retain their sovereignty, including fiscal and other national policies. Thus, the IMF will continue to consult with the governments of the Member States, as well as with Luxembourg, which, under the Belgium-Luxembourg Economic Union, does not have a separate exchange rate or balance of payments. But when it comes to monetary policy, the IMF will have to consult with the ECB. In terms of exchange rates, relations with the IMF are becoming more complicated. Under the Maastricht Treaty, the EU Council of Ministers is responsible for the “general guidelines” of exchange rate policy. But the ministers “only agreed to adopt exchange rate policy guidelines in exceptional circumstances, such as a clear error in the direction of the euro, which is likely to continue.” The ECB will therefore take care of the exchange rate on a daily basis. The crisis continued when the credit ratings of nine euro area countries, including France, downgraded the ratings of the European Financial Stability Facility (EFSF) as a whole. [54] On 17 June 1997, the Amsterdam European Council decided to adopt the Stability and Growth Pact, which aims to ensure fiscal discipline after the adoption of the euro, and a new exchange rate mechanism (ERM II) was put in place to ensure stability above the euro and national currencies of countries that have not yet joined the euro area. On 3 May 1998, the Brussels European Council selected the eleven countries of origin that would participate in the third phase from 1 January 1999.

In order to participate in the new currency, Member States had to meet strict criteria such as a budget deficit of less than 3% of GDP, a debt ratio of less than 60% of GDP, low inflation and interest rates close to the EU average. Greece did not meet the criteria and was excluded from participation on 1 January 1999. One of the priorities of the Maastricht Treaty was the economic policy and convergence of the economies of the EU Member States. The treaty therefore set a timetable for the creation and implementation of EMU. EMU should include a common economic and monetary union, a central bank system and a common currency. According to the Economist Intelligence Unit in 2011, the [euro area] is treated as a single entity, its [economic and fiscal] position is no worse and, in some respects, rather better than that of the United States or the United Kingdom,” and the budget deficit in the euro area as a whole is much lower and the euro area`s public debt ratio of 86% in 2010 was roughly us. “Furthermore,” they write, “private sector debt in the euro area as a whole is significantly lower than that of the highly borrowed Anglo-Saxon economies.” The authors conclude that the crisis is “as much political as it is economic” and that the result is that the euro area does not support the “institutional parapherne (and reciprocal bonds of solidarity) of a state.” [53] However, in June 2010, a broad agreement was finally reached on a controversial proposal for Member States to review the other side`s budgets before submitting them to national parliaments. Although Germany, Sweden and the United Kingdom opposed the entire budget, each government would present its colleagues and the Commission with its estimates of growth, inflation, revenue and expenditure six months before entering national parliaments.

If a country were in deficit, it would have to justify it to the rest of the EU, while countries with debts above 60% of GDP would be subject to further scrutiny. [49] The plans would apply to all EU Member States, not just the euro area, and will need to be approved by EU heads of state or government, as well as proposals for the EU Member States

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