Development History of the euro

1 development

1.1 ideas
1.2 relaunch
1.3 second stage

development
early ideas

pierre werner s report began first moves towards monetary union

first ideas of economic , monetary union in europe raised before establishing european communities. example, in league of nations, gustav stresemann asked in 1929 european currency against background of increased economic division due number of new nation states in europe after world war i. @ time memories of latin monetary union involving principally france, italy, belgium , switzerland , which, practical purposes, had disintegrated following first world war, figured prominently in minds of policy makers.

a first attempt create economic , monetary union between members of european economic community goes initiative european commission in 1969, set out need greater co-ordination of economic policies , monetary cooperation. followed @ meeting of european council @ hague in december 1969. european council tasked pierre werner, prime minister of luxembourg, finding way reduce currency exchange rate volatility. report published in october 1970 , recommended centralisation of national macroeconomic policies entailing total , irreversible fixing of parity rates , complete liberation of movements of capital. did not propose single currency or central bank. attempt limit fluctuations of european currencies, using snake in tunnel, failed.

in 1971, president richard nixon removed gold backing dollar, causing collapse in bretton woods system managed affect of world s major currencies. widespread currency floats , devaluations set aspirations european monetary union. however, in march 1979 european monetary system (ems) created, fixing exchange rates onto european currency unit (ecu), accounting currency, stabilise exchange rates , counter inflation. created european monetary cooperation fund (emcf).

in february 1986 single european act formalised political co-operation within community including competency in monetary policy. european council summit in hannover on 14 june 1988 began outline monetary co-operation. france, italy , european commission backed monetary union central bank, british prime minister margaret thatcher opposed.

relaunch

president delors three-point plan laid out path emu

the hannover european council asked commission president jacques delors chair ad hoc committee of central bank governors propose new timetable clear, practical , realistic steps creating economic , monetary union. way of working derived spaak method.

france , uk opposed german reunification, , attempted influence soviet union stop it. however, in late 1989 france extracted german commitment monetary union in return support german reunification.

the delors report of 1989 set out plan introduce emu in 3 stages , included creation of institutions such european system of central banks (escb), become responsible formulating , implementing monetary policy. laid out monetary union being accomplished in 3 steps. beginning first of these steps, on 1 july 1990, exchange controls abolished, capital movements liberalised in european economic community. leaders reached agreement on currency union maastricht treaty, signed on 7 february 1992. agreed create single currency, although without participation of united kingdom, january 1999.

gaining approval treaty challenge. germany cautious giving stable currency, i.e., german mark, france approved treaty narrow margin , denmark refused ratify until got opt out monetary union united kingdom, opt-out maintain of 2011. on 16 september 1992, known in uk black wednesday, british pound sterling forced withdraw fixed exchange rate system due rapid fall in value of pound.

second stage

wim duisenberg first president of european central bank

delors second stage began in 1994 creation of european monetary institute, succeeding emcf, under maastricht. created forerunner european central bank. met first time on 12 january under first president, alexandre lamfalussy. after disagreement, in december 1995 name euro adopted new currency (replacing name ecu used previous accounting currency), on suggestion of then-german finance minister theo waigel. agreed on date 1 january 1999 launch.

on 17 june 1997 european council decided in amsterdam adopt stability , growth pact, designed ensure budgetary discipline after creation of euro, , new exchange rate mechanism (erm ii) set provide stability above euro , national currencies of countries hadn t yet entered eurozone. then, on 3 may 1998, @ european council in brussels, 11 initial countries participate in third stage 1 january 1999 selected. participate in new currency, member states had meet strict criteria such budget deficit of less 3% of gdp, debt ratio of less 60% of gdp, low inflation, , interest rates close eu average. greece failed meet criteria , excluded participating on 1 january 1999.

on 1 june 1998 european central bank succeeded european monetary institute. wouldn t take on full powers until euro created on 1 january 1999. bank s first president wim duisenberg, former head of emi , dutch central bank. conversion rates between 11 participating national currencies , euro established. rates determined council of european union, based on recommendation european commission based on market rates on 31 december 1998, 1 ecu equal 1 euro. these rates set council regulation 2866/98 (ec), of 31 december 1998. not set earlier, because ecu depended on closing exchange rate of non-euro currencies (principally pound sterling) day. due differences in national conventions rounding , significant digits, conversion between national currencies had carried out using process of triangulation via euro.