ABSTRACT: In 1988 The European Council from Hanover has founded a committee leaded by Jacques Delors, president of The European Committee about that time, with the task of formulating proposals concerning legislative and economic arrangements necessary to finish The Economic and Monetary Union.
Delors recommended a plan involving three stages able to lead at a better coordination of economic and monetary policies from the EU countries, with the intention of creating a unique European currency under the administration of The Central European Bank.
KEY WORDS: EURO, European unique currency, monetary policy, The European Monetary System, the common market
Fifty years ago, the founders of The European Community thought that the Common Market they were about to establish was in great need of commune economic and monetary policies. For the beginning, such an enormous project seemed unachievable. Therefore there were several attempts of coordinating the economic policies throughout consulting communitarian institutions only that finally the ultimate responsibility for defining such policies remained a prerogative of each member state for many years to come.
In 1969, the heads of the states that composed, in that moment, The European Community, gathered at Haga, officially launched an ambitious initiative of forming The Economic and Monetary Union. The calendar for achieving this project was elaborated by a committee presided by the Luxembourgian Prime-Minister, Pierre Werner, who in the next year presented a final report composed of three stage at the end of which, in 1980, national instruments of economic and monetary policies should
“merge” into a range of “communitarian instruments” used for commune objective.
Thus, the Luxembourgian Prime-Minister proposed, for the first time, the adoption of a unique monetary policy.
* Prof., Ph.D. at the “ARTIFEX” University of Bucharest, Romania
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In the following years, the launch of the second stage of the Werner Plan was successively undermined because of the oil crisis, the divergence among national economic policies of member states from The European Community, as well as because of the dollar’s fall.
In 1979, the plan of forming The Economic and Monetary Union became again up-to-date through the creation of The European Monetary System. The increasing fluctuation of exchange rates persuaded firms from communitarian countries to be very cautious in making massive or long-term investments in the countries outside the community, especially because this thing could prevent them to abundantly profit of the advantage offered by The Common Market.
Through a transfer of monetary autonomy, The European Monetary System created a stable and easily adjustable mechanism of exchange rates through defining certain standard rates in accordance with a new monetary unit represented by the ECU (the name of an old French coin).
Experience gained through the operation of this system was very useful having in view the creation of unique currency, because the fluctuations of exchange rates were significantly reduced. Thus, a new age of economic stability between member states of the community began.
As inflation rates in the communitarian countries diminished considerably, reaching a unitary floor, in the middle of ‘80, it became obvious that it was the time for a new impulse toward forming The Economic and Monetary Union.
The emergence of the unique currency represented an elemental requirement for perfecting the unique market through the complete elimination of non-tariff barriers which make heavier the circulation of goods, capitals, services and persons.
In 1988 The European Council from Hanover has founded a committee leaded by Jacques Delors, president of The European Committee about that time, with the task of formulating proposals concerning legislative and economic arrangements necessary to finish The Economic and Monetary Union.
Delors recommended a plan involving three stages able to lead at a better coordination of economic and monetary policies from the EU countries, with the intention of creating a unique European currency under the administration of The Central European Bank. From that moment, things begun to move faster. In 1991 the heads of EU member states signed The Maastricht Treaty laying down a set of six severe criterions of economic convergence that must be fulfilled by those countries which intended to adopt the unique European currency.
The third and last stage of creating The Economic and Monetary Union began at 1 January 1999 when the unique European currency emerged.
In fact, temporally speaking, these stages were based on several important steps that laid the foundations of EURO, such as:
The history of EURO 65 - 18 April 1951 – the signing of The Paris Treaty concerning the establishment
of The European Community of Coals and Steels;
- March 1957 – the signing The Rome Treaties that laid the foundations of The Economic European Community and of The European Community for Nuclear Energy;
- December 1969 – The Hagan Summit when Pierre Werner received the task of elaborating a report concerning means of reducing the instability of exchange rates;
- October 1970 – the publication of the Werner report that recommends the centralization of macro-economic policies of member states of The European Community;
- 1971-1973 – the abolishment of the Fixed Exchange Rates System - Bretton Woods, causing a great stroke to hopes of establishing The European Monetary Union;
- March 1979 – the creation of The European Monetary System and its coming into force based on a new monetary unit called ECU;
- February 1986 - the signing of The Single European Act brings modifications to The Rome Treaty and institutionalizes cooperation among member states in six new fields including monetary cooperation;
- 14 June 1988 – the Hanover Summit oh The European Community ensure the progress of the leaders of The European Committee in planning monetary study;
- 1 July 1990 – the establishment of The European Monetary Union which allows the free movement of capital;
- 7 February 1992 – the signing of The Maastricht Treaty proposing January 1999 as the last term for introduction EURO;
- 3 June 1992 – the rejection of The Maastricht Treaty by Denmark;
- 17 September 1992 – the suspension of the GBP from the monetary snake;
- 21 September 1992 – France embraces The Maastricht Treaty;
- 12 January 1994 – the creation of The European Monetary Institute, the forerunner of The European Central Bank;
- 1 January 1995 – the expand of The European Union with three members:
Austria, Finland and Sweden;
- December 1995 – EURO becomes the new official name for the unique currency replacing ECU;
- 1 June 1998 – the forming of The European Central Bank;
- 5 January 1999 – the official launch of EURO which in first day of transaction reaches the parity of 1,19 USD;
- 3 December 1999 – financial shaking caused by the breakdown of the EURO-USD parity under 1;
- 25 September 2000 – the G7 member countries support EURO in the competition with USD;
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- 29 September 2000 – Danes categorically declare themselves against EURO throughout referendum;
- 1 January 2001 – Greece join the EURO zone giving up to the national currency.
The one that formulated the theories which lay on the basis of EURO is the Canadian economist Robert Mundell, teacher to The University of Columbia who received in 1999 The Nobel Prize for Economy of The Swede Royal Academy for Science for his analysis about exchange rates and the ways in which their fluctuations affect the monetary policies.
The teacher Robert Mundell doesn't consider himself the father of EURO, rather the godfather and better on one from several godfathers of the European unique currency.
The scientist set the theoretical bases of The Monetary Union, being most enthusiastic supporter of EURO. Paradoxical is the fact that his theory concerning zone with optimum currency was used of several economists in order to counteract the idea of creating The European Monetary Union and putting under uncertainty the chance of successful for such ale project.
The scientist didn’t directly participate to the elaboration of launch plans for EURO, but he was the first person who, as far back as in 1961, raised a key question:
“In what moment is more advantageous for a state to give up to its monetary sovereignty in favor of a unique currency?”. He anticipated the motion of Europe toward a more and more gathered integration and he estimated that The Monetary Union will be a good thing for the EU member states.
Having the experience of an activity as economic adviser to The United Nations, The International Monetary Fund, The World Bank and as consulter for governments from Latin America, Europe, United States and Canada, the scientist supports now the idea that Asia should try to create its own unique currency based on USD, the first step in this sense being the official adoption of USD as the national currency of Hong Kong.
He pointed out that Asia could borrow from the experience of Europe in order to settle an instrument able to ensure monetary stability, declaring: “Asia could do many things as a whole and not as a sum of individual countries. The creation of a unique Asian currency is a feasible thing”.
Thus, a number of 13 states from Asia, strongly affected by the economic crisis from 1997, already made the first steps in the direction of formulating multilateral agreements among their central banks in order to provide them a better protection in case of new possible crisis. The Prime-Minister of Malaises, Mahathir Mohamad, declared with the occasion of the Economic Forum from China, in 2001, that an Asian monetary system could allow a better monetary stability in this region.
Nevertheless, several officials and analysts of the Asian zones consider that forming an Asian monetary union is still a matter of several decades and not several years.
The history of EURO 67 The same scientist underlined the necessity of a unique currency world-wide with fixed exchange rates in relation with USD, EURO and JPY.
For all that it has a parent, EURO was created by The European Committee and it had to be an easy to recognize symbol for Europe, easy to write by hand with a nice design.
Once the symbol was created, the EU member states entered into the last stage of applying the Maastricht Treaty, the adoption of EURO in 1 January 1999. This was conditioned by accomplishing three important groups of convergence criterions, such as:
- price settling, so as to inflation from EU member states do not exceed 1,5%
given the average of the most performing three communitarian countries in this field;
- public finances, meaning that budget deficit must not exceed 3% from the national GDP and public debt must not exceed 60% from the national GDP;
- exchange rates must not exceed normal margin of +/-2,25% relating to ECU, stipulated into The European Monetary System;
- interest rates must not exceed 2% relating to average level of long-term interest of the most performing three countries in this field.
In the final phase of forming The Economic and Monetary Union at least 7-8 countries had to enter the union by accomplishing all convergence criterions. Even if in 1996 several austerity programmers were applied in almost every EU country in order to allow them to fulfil adhering criterions, starting with 1997, in 1 January 1999 only 11 states was able to adopt EURO and two years later Greece join them after many efforts.
The arise of EURO wanted as a stable and powerful currency had the mission of re-launching Europe in its competition with U.S.A. and Japan through re-settling currency influence spheres on the world market, being a reunion of the three most important currencies as volume of financial flows.
But in order to achieve this objective, EURO had to pass the trust test which wasn’t very promising at first. After two years of virtual existence, EURO came out tumbled enough from the direct fight on currency markets with USD.
As EURO is going to consolidate its position as a stabile currency, it is very likely to become the currency of rolling commercial and financial contracts on a large scale.
Being the currency of the main commercial power, EURO is able to influence capital flows to detach more easily from former currencies of EU countries. The relatively high fluctuations of these currencies throw the European companies into an unequal competition with their rivals from beyond the Ocean. Now they have a real chance in EURO.
Entering in circulation EURO creates conditions to diminish considerable differences between the image reflected by exchange rates and fundamental economic data, differences that tend to cause sever financial and commercial crises. In the same
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time, the gradual increase of the weight of the countries with money reserves in EURO is going to ensure the balance of the International Monetary System, which, at present, is dominated by USD.
Changes into investors behaviour is not expected very soon, especially taking into account that in the first two years of the existence of EURO investors suffered several losses by using this currency.
Portofolio reallocations depend mainly on the direction given by possible differences between interest rate on the EURO market and those registered on other national and international financial markets. In addition, the premises of EURO markets stability and homogeneity are going to act as an attraction pole for investors.
The emergence of EURO is also planned to lead to cooperation deepening world-wide based on convergences in currency policies of the world economic leaders.
This fact was pointed out by tendencies arisen several times on the occasion of effort coordination by banks from EURO zone, U.S.A. and Japan in the direction of tempering financial markets by diminishing the shocks to which EURO, USD and JPY were subjected. We can say that this is one of the greatest benefits of launching EURO, namely the fact that the leaders of the financial world take into consideration the risk of acting by themselves and the advantages of coordinated approaches.
From these situation several questions arise, such as: will the creation of EURO be the beginning of the fight for re-settling influence spheres in Europe and world-wide; are we going to attend to the emergence of the “United States of Europe”
excepting England, which is a well known American ally; will EURO confirm the recognition of Germany’s economic power and of French’s diplomatic power in the whole Europe and not only.
These are only a few questions, to which all Europeans expect an answer, and most of all Romanians strongly engaged in the European integration process.
REFERENCES:
[1]. Anghelache C. - Euro 2000. Ultima bătălie a secolului XX, Editura Economică, Bucureşti, 2003
[2]. Penea Z. - Moneda Euro, Editura Tehnică, Bucureşti, 2002
Annals of the University of Petrosani, Economics, 4( 2004), 69-74 69