Euro Currency Ppt (1)



INDEX



INTRODUCTION TO EURO



CANDLE STICK PRESENTATIONOF EURO



EURO ZONE•Based on International MonetaryFund estimates of 2008 GDPand purchasing power parity among thevarious currencies, the euro zone is thesecond largest economy in the world.•

•The euro is the second largest reservecurrency as well as the second most

traded currency in the world after the United States dollar. As of July 2011,with nearly €890 billion in circulation,

the euro has the highest combined valueof banknotes and coins in circulation inthe world, having surpassed the U.S.dollar



This chart shows the value of the euro(before 1999 as a basket of the 11 legacy

currencies) against the US dollar.



Evolution of EURO



ECB AND ERM CRISIS



SUCCESS ACHIEVED BY EUROCURRENCY

• Integration of money markets

• Convergence of long term marketinterest rates

• Single monetary policy



CHALLENGES FACED BYEURO

• Need to raise the economic growth

• Enlarging the euro area



EURO V/S DOLLAR

• Euros and dollars are one of the most influentialglobal currencies in this modern era. Both of thesecurrencies play a very significant role in definingthe shape of global economics and finance.Though, the dollar was already established as theworld’s most stable and important currency beforethe advent of euro but right at this moment, both of these currencies seem to go parallel in their valueand worth



DIFFERNCE BETWEEN EUROAND DOLLAR

•EURO

• It is used in europeanstates of european

union• It is second largest

trading currency inthe world

•

European central bankgoverns eurocurrency

• Euro does not havestamping power

•

•DOLLAR

• It is used in unitedstates of america

•

It is the first largestcurrency which isbeen traded in theworld

• Federal reserve bank

governs dollar• Dollar has a stamping

power of americaneconomy on theworld wide fiscalscenario



Contd…..

• Recently euro isappreciating inthe value against

dollar• Interest rates for

euro prescribedby european

central bank is1%

• Euro is used formaintainingreserves of banks

• Vice-versa

• Interest rates fordollar prescribed

by federalreserve bank is0%

• But dollars are

used by worldbank formaintainingreserves



ec s nBusiness

IN EURO ZONE• The single currency benefits business in many ways, in

addition to cutting costs and risk. It encouragesinvestments and brings more certainty to businessplanning – thus allowing businesses to be moreeffective overall.

•

ü More Cross-Border Trade

• A direct benefit of the euro is that, within the euroarea, there is no need for businesses to work indifferent currencies. A company can buy and sell

throughout this area, paying and being paid in euro.•

• Previously, when doing business in another EUMember State, a company would need to take

account of the risk of fluctuating exchange rates



• This meant either export prices were higher, orcompanies were discouraged from exportingwithin the single market. This risk has now

gone, as have the costs associated withexchanging different currencies.

• Before the euro, these exchange costs wereestimated at €20 to 25 billion per year in theEU much of it incurred as companies

transferred goods, people and capital aroundEurope. With the euro, these costs havedisappeared in the euro area, and this money isnow available for more productive investment.

• With no exchange risks and costs, cross-border

trade within the euro area is encouraged. Notonly can companies sell into a much larger‘home market’, but they can also find newsuppliers offering better services or lower costs– a development that is helped by the growth of

e-commerce over the internet. Trade within theeuro area is estimated to have increased



üBetter Borrowing, Better Planning,More Investment

• Before the euro, volatile interest rates meantunpredictable costs.

•

• With the euro, inflation has come down to a low andstable level, which also means low and stableinterest rates. Firms can borrow more and morecheaply and can invest more confidently in the long

term.•üBetter Access To Capital• The euro gives a large boost to the integration of

financial markets across the euro area. Investors,such as banks, are no longer limited to localmarkets.

•

• Capital can flow more easily because exchange raterisks have disappeared and because financial

market rules are being progressively harmonised –allowing investors to move capital to those parts of



ü Energy and Environment(Facts)

• The EU depends on imports for more than 50% of

its energy needs.•

• Net dependence on energy imports as apercentage of total consumption, EU-27 (2007)

was 53.1 %•

• To reduce this dependence and protect theenvironment, the EU is striving to use energymore efficiently and use more renewablesources. The EU has set a target of generating20% of its electricity from renewable sourcessuch as wind, the sun, water, geothermal plantsand biomass by 2010.



üMore International Trade• The euro is a strong international currency backed

by the commitment of the euro-area Member

States and the firm and visible management of monetary policy by the European Central Bank.

•

• The euro area is also a large and open trading

bloc. This makes doing business in euro anattractive proposition for other trading nations,which can access a large market using onecurrency.

•

• Euro-area companies also benefit because theycan export and import in the global economywhile paying, and being paid, in euro – reducingthe risk of losses caused by global currencyfluctuations.

•



ü Trade (Facts)

• With just 7% of the world’s population, the EU'strade with the rest of the world accounts foraround 20% of global exports and imports. TheEU is the world’s biggest exporter and thesecond-biggest importer.

•

• Around two thirds of EU countries’ total trade isdone with other EU countries.

•

• The United States is the EU’s most important

trading partner, followed by China. In 2005, theEU accounted for 18.1% of world exports and18.9% of imports.

•

Eff t Of EURO O



Effects Of EURO OnConsumer IN EURO ZONE

• There are multiple opportunities for EU citizens

and consumers to benefit from the euro. Thesearise because the euro and its politicalframework, the Economic and Monetary Union,offer lower costs, stable prices, moretransparency and economic stability.

•

• Some of these consumer benefits are direct, suchas easier-to-compare prices while shopping;others are indirect, such as the long-termbenefits economic stability brings to interestrepayments on a bank loan for a new car. Inboth cases, the opportunities the singlecurrency offers are wide ranging, covering not

only everyday transactions, but also



ü Consumer Benefits(Facts)

• Percentage of EU citizens who believe that theircountry has benefited or not from being amember of the EU, autumn 1996 to autumn2009

• Year Benefited Not benefited

• 1996 42 36

• 1997 44 35

• 1998 49 31

• 2006 54 34

•

2007 58 29• 2008 56 31

• 2009 57 31



ü A more Competitive Market

• The euro brings price transparency to the singlemarket. Consumers can easily compare prices

across borders and find the most advantageousprice for a product or service – especially in theinternet era – whether it is a pair of trousers or ahigh-end home cinema system. This is becauseincreased price transparency has the effect of

increasing competition between shops andsuppliers, keeping downward pressure on prices inthe euro area.

•

ü Stable Prices

• The euro has brought inflation down to a low andstable level. In the 1970s and ‘80s many EUcountries had very high inflation rates, some of 20%and more. Inflation fell as they started preparing for

the euro and, since its introduction, has remainedaround 2% in the euro area. Price stabilit means



ü

ü Easier, Safer, and Cheaper Borrowing

• Low inflation and stable prices are a key aim of

the management of the euro-area economy.Because the European Central Bank acts tokeep inflation low, interest rates are also lower.

•

• This means consumer loans are cheaper andfuture repayments are more predictable, soordinary citizens can borrow more easily andcheaply, for example to pay for holidays or to

buy a house. Mortgage rates have fallen fromaround 8%-14% in the early 1980s to anaverage of 5% now in the euro area, saving aborrower with a €100 000 outstanding loanbetween €170 and €750 a month on interest

payments.



ü More Growth and Jobs

• In a single market with a single currency, doingbusiness across borders is cheaper for

companies as they no longer need to includethe risk of currency fluctuations into their pricesnor to pay exchange costs. Previously, thesecosts amounted to around €20 to 25 billion

annually within the European Union.• Today, they have disappeared in the euro area.

This helps release capital to invest inexpanding and growing business andemploying more workers, thereby benefiting

jobseekers and their families. Since the eurowas introduced in 1999, more than 10 millionnew jobs have been created in the euro area,compared with only 1.5 million in the previous

seven years.



ü Employment(Facts)

• Over the past 50 years, employment inagriculture and industry has fallen, while moreand more people now have a job in the servicesector.

•

• Percentage of workforce employed in agriculture,industry and services, EU-27 (1998 and 2009)

• 1998 2009

• Services 64.7 66.7

• Industry27.5 27.7

• Agriculture 7.8 5.6



•

ü More Public Investment

• It is not only citizens and business which benefit

from cheaper loans: government borrowing isalso less expensive, as interest payments onnational debt are lower.

•

• The money saved can therefore either be used forinvestment in new infrastructure, or to boostresearch spending for jobs and growth, or forimproving welfare and pension systems, or to

reduce the tax burden – depending on aMember State’s priorities.

•



Single Financial markets• Financial markets deal with the flow of capital and

are vital to an open market economy becausean efficient financial market provides for betteruse of capital. The introduction of the euro in1999 provided major impetus to the integrationof financial markets in Europe, thus making

them more efficient and competitive, andreducing the costs of cross-border moneytransfers in euro.

•

ü Measuring the EU’s economy• With 12 new member countries joining since

2004, the EU’s GDP— output of goods andservices — is now bigger than that of the US:

GDP (€11 785 474.9, 2009)



ü Use As Reserve Currency(Facts)

• Since its introduction, the euro has been thesecond most widely held international reserve

currency after the U.S. dollar. The share of theeuro as a reserve currency has increased from17.9% in 1999 to 26.5% in 2008, at theexpense of the U.S. dollar (its share fell from70.9% to 64.0% in the same timeframe) and

the Yen (it fell from 6.4% to 3.3%)• The euro remains underweight as a reserve

currency in advanced economies whileoverweight in emerging and developingeconomies: according to the InternationalMonetary Fund the total of euro held as areserve in the world at the end of 2008 wasequal to USD 1.1 trillion or €850 billion, with ashare of 22% of all currency reserves inadvanced economies, but a total of 31% of allcurrency reserves in emerging and developing



ü Bigger is More Efficient• The more integrated financial markets are, the more efficient the

allocation of capital is because investments opportunities andcompetition are also greater, and capital can move around towhere it can be used most efficiently.

•• The introduction of the euro in 1999 proved to be a powerful catalyst

to the integration of financial markets and the creation of a muchlarger, more efficient single financial market, which brings manyeconomic benefits:

1.2. A single financial market allows individual citizens and companies to

invest throughout the euro area to obtain the best return on theirsavings. It creates opportunities to borrow from across the euroarea, seeking out the lowest cost for their loan. Investors can alsospread risks more widely.

3.

4. The costs of financial intermediation, such as bank charges, are lower.In the euro area there are more banks and investment funds andthus there is more competition between them. Lower costsencourage more capital flows.

5.6. More capital is available to borrowers at a lower cost because there

are more sources of capital. This makes the money they borrowcheaper and better tailored to the needs of the borrower.



ü Building The Single Financial Market

• The single currency was a key step towards thecreation of the single financial market. Its

introduction immediately removed someobstacles to free capital flows – namely thecosts associated with exchanging differentcurrencies. Previously, these costs were abarrier to cross-border investments – todaythey no longer exist in the euro area.

•

• Since the introduction of the euro, cross-borderbank deposits have increased, the yields ongovernment bonds have converged, and theinterest rates on retail loans, taken out byindividual citizens, have also converged.



ü The Single Euro Payments Area

• An important aspect of the single financial market ispayments, which daily affect cross-bordertransactions of citizens and business. The costs of sending money in euro to another euro-area countryhave already been slashed by as much as 90%since the introduction of the euro and EU rules oncross-border euro payments in 2001.

•

• The Single Euro Payments Area (SEPA), initiallyplanned for 2010, is a further step in the samedirection. An initiative of the European bankingindustry, it aims to further facilitate electronicpayments across the euro area by making them as

easy, safe and efficient as if they were done withinone Member State and subject to identical charges.Citizens will benefit from faster and more securetransfers between bank accounts anywhere in theeuro area, and will be able to use their bank debitcard when shopping abroad as they would at home.

The Commission has helped the development of



Beginning of Crisis

• Started in – Oct 2009 in Greece

• Its immediate causes lie with the US crisis of

2007-09

• The result in Euro Zone was Sovereign debt

crisis•PIIGS: Portugal, Italy, Ireland,

Greece, Spain

•



What Happened

• Greece: Sharp Budget Deficit

• Large Government and External Debts in PIIGS

• Greece credit rating downgraded

• Interest rates surged on government bonds

• Need for external aid from EU and IMF

•The high debts and rising rate of interests was a

matter of concern

•

•



Greece

• Sovereign-debt crisis boil over• Financial panic in Europe• Foreign banks lending was € 164 billion•

Debt to GDP ratio has been around 140%

• January – February 2011, on a fiscalbasis, the State Budget deficit was €

55million lower than the target set inthe 2011 Budget for the first twomonths of the year standing at €1,024 million compared to a target of

€ 1,076 million



Portugal

• Budget deficit 9.3% of GDP

• Public debt 77% of GDP

• Common weaknesses with Greece:

1.Small economy

2.Competitiveness

• Total Debt of €198 billion

1.

2.



Spain

• Most at risk even now

• Dependence on foreign finance

• Public debt 53% of GDP



Reasons

• For rise in External Debts

§ Increase in wage rates

§ Lower exchange rate risk

• Weakening export competitiveness

• Weakening of tourism & shipping by 15%

• For rise in Internal Debts:

• Rising Unemployment: Lower tax returns,higher budget deficits

•

•



Slovenia’s Economy

• Europe Debt Crisis to SlowSlovenia’s Economic RecoveryFurther

•Slovenia’s economic recovery is at riskfrom the euro region’s debt crisisbecause it hampers access to funding,

according to the government’sforecasting institute.

EURO’ STATUS IN RECENT



EURO’s STATUS IN RECENT YEARS..

AFTER EFFECTS OF RECENT



AFTER EFFECTS OF RECENTCRISIS..



RECENT DEVELOPMENTS…



COMMON CURRENCY

Judging the Success of theEuro

C C i i i i



Convergence Criteria – Joiningthe Euro

I h E O i l



Is the Euro an OptimalCurrency Zone?



Optimal Currency Zones (2)

T i i th E A



Tensions in the Euro Area(2)

T i i th E A



Tensions in the Euro Area(1)

Mi i B fit f



Microeconomic Benefits of Entry

Mi i B fit f UK



Microeconomic Benefits of UK Entry

Microeconomic



Microeconomic Disadvantages

Macroeconomic Case



Macroeconomic CaseAgainst Entry

Euro Currency Ppt (1)

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