|
The euro - what it all means
|
 |
December 8, 1998: 11:43 a.m. ET
CNNfn's guide to the institutions and jargon of European Monetary Union
|
LONDON (CNNfn) - Developing a single European currency is a mammoth task, and it has involved the creation of a range of new institutions and jargon. Here's what it all means…
Economic and Monetary Union (EMU) - is a single currency area within the European Union single market in which people, goods, services and capital move without restrictions.
It is supported by an independent central bank and legal obligations on the participating member states to pursue sound economic policies and to coordinate these policies very closely.
The rules, institutions and objectives of EMU are set down in the Maastricht Treaty of 1992.
The euro - Europe's new unit of currency. It was named in December 1995 and comes into existence on Jan. 1, 1999. However, it will exist side by side with national currencies until 2002.
Euro notes and coins will not come into general circulation until January 2002, and it will become the only currency of the EMU zone from July 1, 2002. At this stage other currencies, such as the Dutch guilder, German mark and French franc will cease to be legal tender.
The European Central Bank (ECB) - The arbiter of monetary policy in the EMU-zone from January 1999.
The ECB is controlled by a Governing Council, and in many ways is modeled on its German predecessor, the Bundesbank. It even meets every other Thursday, just like the Bundesbank currently does.
In May 1998 the governments of the eleven participating member states appointed the president, the vice-president and the four other members of the executive board of the ECB. Their appointment June 1 marked the establishment of the ECB.
The ECB's Governing Council, which will set interest rates in Europe, consists of the six members of the executive board - presided over by Wim Duisenberg - and the heads of the central banks in the 11 participating countries.
The ECB is to be independent of political ties.
The ecu - Europe's current unit of account. On January 1, 1999 the euro will replace the ecu on a one-for-one basis.
But the ecu is not a currency. It reflects changes in a basket of currencies such as French francs and German marks.
The final ecu exchange rates of December 31, 1998 will be adopted by the European Council on January 1, 1999 as the irrevocable conversion rates for the euro for participating currencies.
euroland or eurozone - The 11 countries which will introduce the euro on Jan 1, 1998. They have a combined population of almost 300 million, and gross domestic product of around $6,500 billion.
Euroland countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
There are four European Union countries not participating in EMU, and therefore outside euroland.
These are Britain and Denmark, which chose not to join EMU at the first opportunity. They can join at a later date - if they satisfy the economic criteria.
The other two non-euroland countries are Greece and Sweden. Greece failed all the criteria for EMU entry, and Sweden failed entry requirements due to its volatile currency. Sweden and Greece are committed to joining EMU when conditions allow, and their economies meet the economic criteria.
EMU criteria - Countries wishing to join EMU must fulfill several economic conditions before they do so.
These are:
their inflation rate should be within 1.5 percent of the rate in euroland.
their exchange rate should be stable in relation to the euro.
their government debt must be less than 60 percent of GDP.
their annual budget deficit must be below 3% of their GDP.
Conversion weekend - January 1-3, 1999. When the whole shebang kicks off. This is likely to be a couple of days of intense activity for players in the financial markets.
Thousands of staff members will be working, attempting to adjust systems and procedures to the new single currency. Experts say this is the period of the greatest risk, when catastrophes are the most likely.
European Union - the group of 15 countries which came together to form a common economic area. This includes the 4 non-EMU countries: Denmark, Greece, Sweden and Britain.
EMU countries (eurozone) are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
Several countries are bidding to join the EU, such as Poland, the Czech Republic and Turkey.
|
|
|
|
|
|
European Union
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
