Report Final

Euro as a Global Currency
Euro
The euro (€) is the official currency of the European Union (EU), and is currently in use
in 16 of the 27 Member States. The states, known collectively as the Eurozone, are
Austria, Belgium, Cyprus, Finland, France, Germany, Greece, the Republic of Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. The
currency is also used in a further five European countries, with and without formal
agreements, and is consequently used daily by some 327 million Europeans. Over
175 million people worldwide use currencies which are pegged to the euro, including
more than 150 million people in Africa.
The euro is the second largest reserve currency and the second most traded currency in
the world after the U.S. dollar.of October 2009, with more than €790 billion in
circulation, the euro is the currency with the highest combined value of banknotes and
coins in circulation in the world, having surpassed the U.S. dollar. Based on IMF
estimates of 2008 GDP and purchasing power parity among the various currencies, the
Eurozone is the second largest economy in the world.
The name euro was officially adopted on 16 December 1995. The euro was introduced to
world financial markets as an accounting currency on 1 January 1999, replacing the
former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes
entered circulation on 1 January 2002.
1.Administration
Main articles: European Central Bank, Maastricht Treaty, and Euro Group
S.P.B.Patel Engg. College (MBA Programme) 1

The ECB in Frankfurt, Germany, is in charge of the Eurozone's monetary policy
The euro is managed and administered by the Frankfurt-based European Central Bank
(ECB) and the Eurosystem (composed of the central banks of the Eurozone countries).
As an independent central bank, the ECB has sole authority to set monetary policy. The
Eurosystem participates in the printing, minting and distribution of notes and coins in all
Member States, and the operation of the Eurozone payment systems.
The 1992 Maastricht Treaty obliges most EU Member States to adopt the euro upon
meeting certain monetary and budgetary requirements, however, not all states have done
so. The United Kingdom and Denmark negotiated exemptions,[7] while Sweden turned
down the euro in a 2003 referendum, and has circumvented the obligation to adopt the
euro by not meeting the monetary and budgetary requirements. All nations that have
joined the EU since 1993 have pledged to adopt the euro in due course.
2.Characteristics
2.1 Coins and banknotes
All euro coins have a common side, and a national side chosen by the issuing bank.
Main articles: euro coins and euro banknotes
The euro is divided into 100 cents (sometimes referred to as euro-cents, especially when
distinguishing them from other currencies). In Community legislative acts the plural
forms of euro and cent are spelled without the s, notwithstanding normal English usage.
Otherwise, normal English plurals are recommended and used; with many local
variations such as for example 'centime' in France.
All circulating coins have a common side showing the denomination or value, and a map
in the background. For the denominations except the 1-, 2- and 5-cent coins that map
only showed the 15 Member States which were members when the euro was introduced.
Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a
map of Europe also showing countries outside the Union like Norway. The 1-, 2- and 5-
cent coins, however, keep their old design, showing a geographical map of Europe with
the 15 Member States of 2002 raised somewhat above the rest of the map. All common
sides were designed by Luc Luycx. The coins also have a national side showing an image

specifically chosen by the country that issued the coin. Euro coins from any Member
State may be freely used in any nation which has adopted the euro.
The common (top) and national sides of the €2 coin
The coins are issued in €2, €1, 50c, 20c, 10c, 5c, 2c, and 1c denominations. In order to
avoid the use of the two smallest coins, some cash transactions are rounded to the nearest
five cents in the Netherlands (by voluntary agreement) and in Finland (by law).
Commemorative coins with €2 face value have been issued with changes to the design of
the national side of the coin. These include both commonly issued coins, such as the €2
commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome,
and nationally issued coins, such as the coin to commemorate the 2004 Summer
Olympics issued by Greece. These coins are legal tender throughout the Eurozone.
Collector's coins with various other denominations have been issued as well, but these
are not intended for general circulation, and they are legal tender only in the Member
State that issued them.
The design for the euro banknotes have common designs on both sides. The design was
created by the Austrian designer Robert Kalina. Notes are issued in €500, €200, €100,
€50, €20, €10, €5. Each banknote has its own colour and is dedicated to an artistic period
of European architecture. The front of the note features windows or gateways while the
back has bridges. While the designs are supposed to be devoid of any identifiable
characteristics, the initial designs by Robert Kalina were of specific bridges, including
the Rialto and the Pont de Neuilly, and were subsequently rendered more generic; the
final designs still bear very close similarities to their specific prototypes; thus they are
not truly generic.Some of the highest denominations such as the €500 are not issued in all
countries, though they remain legal tender throughout the Eurozone.
2.2 Payments clearing, electronic funds transfer
All intra-EU transfers in euro are considered as domestic payments and bear the
corresponding domestic transfer costs. This includes all Member States of the EU, even
those outside the Eurozone providing the transactions are carried out in euro. Credit/debit
card charging and ATM withdrawals within the Eurozone are also charged as domestic,
however paper-based payment orders, like cheques, have not been standardised so these
are still domestic-based. The ECB has also set up a clearing system, TARGET, for large
euro transactions.
2.3 Currency sign
The euro sign; logotype and handwritten.

Main article: Euro sign
A special euro currency sign (€) was designed after a public survey had narrowed the
original ten proposals down to two. The European Commission then chose the design

created by the Belgian Alain Billiet. The official story of the design history of the euro
sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC,
who claims to have created it as a generic symbol of Europe.
Inspiration for the € symbol itself came from the Greek epsilon (Є) – a
“ reference to the cradle of European civilisation – and the first letter of the
word Europe, crossed by two parallel lines to ‘certify’ the stability of the
euro. ”
The European Commission also specified a euro logo with exact proportions and
foreground/background colour tones.While the Commission intended the logo to be a
prescribed glyph shape, font designers made it clear that they intended to design their
own variants instead. Typewriters lacking the euro sign can create it by typing a capital
'C', backspacing and overstriking it with the equal ('=') sign. Placement of the currency
sign relative to the numeric amount varies from nation to nation, but for texts in English
the symbol (and the ISO-standard "EUR") should precede the text.
3. Introduction of the euro

Main article: History of the euro
Preceding national currencies of the Eurozone v•d•e
Currency Code Rate Fixed on Yielded
Austrian schilling ATS 13.7603 31 December 1998 2002
Belgian franc BEF 40.3399 31 December 1998 2002
Dutch guilder NLG 2.20371 31 December 1998 2002
Finnish markka FIM 5.94573 31 December 1998 2002
French franc FRF 6.55957 31 December 1998 2002
German mark DEM 1.95583 31 December 1998 2002
Irish pound IEP 0.787564 31 December 1998 2002
Italian lira ITL 1,936.27 31 December 1998 2002
Luxembourgian franc LUF 40.3399 31 December 1998 2002
Portuguese escudo PTE 200.482 31 December 1998 2002
Spanish peseta ESP 166.386 31 December 1998 2002

Greek drachma GRD 340.750 19 June 2000 2002
Slovenian tolar SIT 239.640 11 July 2006 2007
Cypriot pound CYP 0.585274 10 July 2007 2008
Maltese lira MTL 0.429300 10 July 2007 2008
Slovak koruna SKK 30.1260 8 July 2008 2009
The euro was established by the provisions in the 1992 Maastricht Treaty. In order to
participate in the currency, Member States are meant to meet strict criteria such as a
budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per
cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht
Treaty, the United Kingdom and Denmark were granted exemptions per their request
from moving to the stage of monetary union which would result in the introduction of the
euro.
Economists who helped create or contributed to the euro include Fred Arditti, Neil
Dowling, Wim Duisenberg, Robert Mundell, Tommaso Padoa-Schioppa, and Robert
Tollison.[citation needed] (For macro-economic theory, see below.) The name euro was devised
on 4 August 1995 by Germain Pirlot, a Belgian Esperantist and ex-teacher of French and
history, and officially adopted in Madrid on 16 December 1995.
Due to differences in national conventions for rounding and significant digits, all
conversion between the national currencies had to be carried out using the process of
triangulation via the euro. The definitive values in euro of these subdivisions (which
represent the exchange rates at which the currency entered the euro) are shown at right.
The rates were determined by the Council of the European Union, based on a
recommendation from the European Commission based on the market rates on 31
December 1998. They were set so that one European Currency Unit (ECU) would equal
one euro. The European Currency Unit was an accounting unit used by the EU, based on
the currencies of the Member States; it was not a currency in its own right. They could
not be set earlier, because the ECU depended on the closing exchange rate of the non-
euro currencies (principally the pound sterling) that day.
The procedure used to fix the irrevocable conversion rate between the drachma and the
euro was different, since the euro by then was already two years old. While the
conversion rates for the initial eleven currencies were determined only hours before the
euro was introduced, the conversion rate for the Greek drachma was fixed several months
beforehand.
The currency was introduced in non-physical form (travellers' cheques, electronic

transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of

participating countries (the Eurozone) ceased to exist independently. Their exchange

rates were locked at fixed rates against each other, effectively making them mere non-
decimal subdivisions of the euro. The euro thus became the successor to the European
Currency Unit (ECU). The notes and coins for the old currencies, however, continued to
be used as legal tender until new euro notes and coins were introduced on 1 January
2002.
The changeover period during which the former currencies' notes and coins were
exchanged for those of the euro lasted about two months, until 28 February 2002. The
official date on which the national currencies ceased to be legal tender varied from
Member State to Member State. The earliest date was in Germany where the mark
officially ceased to be legal tender on 31 December 2001, though the exchange period
lasted for two months more. Even after the old currencies ceased to be legal tender, they
continued to be accepted by national central banks for periods ranging from several years
to forever (the latter in Austria, Germany, Ireland, and Spain). The earliest coins to
become non-convertible were the Portuguese escudos, which ceased to have monetary
value after 31 December 2002, although banknotes remain exchangeable until 2022.
4. Direct and indirect usage

Further information: Eurozone, International status and usage of the
euro, and Enlargement of the eurozone
4.1 Direct usage
The euro is the sole currency of 16 EU Member States: Austria, Belgium, Cyprus,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands,
Portugal, Slovakia, Slovenia and Spain. These countries comprise the "Eurozone" or
"Euro Area", some 326 million people in total. Estonia is expected to join in 2011,
subject to approval from the Council.
With all but two of the remaining EU members obliged to join, together with future
members of the EU, the enlargement of the eurozone is set to continue further. Outside
the EU, the euro is also the sole currency of Montenegro and Kosovo and several
European micro states (Andorra, Monaco, San Marino and Vatican City) as well as in
three overseas territories of EU states that are not themselves part of the EU (Mayotte,
Saint Pierre and Miquelon and Akrotiri and Dhekelia). Together this direct usage of the
euro outside the EU affects over 3 million people.
It is also gaining increasing international usage as a trading currency, in Cuba, North

Korea and Syria. There are also various currencies pegged to the euro (see below). In
2009 Zimbabwe announced to abandon its local currency and use major currencies
instead including the euro and the United States dollar.
4.2 Usage as reserve currency

Since its introduction, the euro has been the second most widely-held international
reserve currency after the U.S. dollar. The share of the euro as a reserve currency has
increased from 17.9% in 1999 to 26.5% in 2008, at the expense of the U.S. dollar (its
share fell from 70.9% to 64.0% in the same timeframe) and the Yen (it fell from 6.4% to
3.3%). The euro inherited the status of the second most important reserve currency from
the German mark.
The euro remains underweight as a reserve currency in advanced economies while

overweight in emerging and developing economies: according to the IMF the total of
euros held as a reserve in the world at the end of 2008 was equal to USD 1.1 trillion, with
a share of 22% of all currency reserves in advanced economies, but a total of 31% of all
currency reserves in emerging and developing economies.
The possibility of the euro becoming the first international reserve currency is now
widely debated among economists. Former Federal Reserve Chairman Alan Greenspan
gave his opinion in September 2007 that it is "absolutely conceivable that the euro will
replace the dollar as reserve currency, or will be traded as an equally important reserve
currency." In contrast to Greenspan's 2007 assessment the euro's increase in the share of
the worldwide currency reserve basket has slowed considerably since the year 2007 and
since the beginning of the worldwide credit crunch related recession.
4.3 Currencies pegged to the euro
Worldwide use of the euro and the U.S. dollar: Eurozone External adopters of the euro
Currencies pegged to the euro Currencies pegged to the euro within narrow band United States
External adopters of the US dollar Currencies pegged to the US dollar Currencies pegged to the
US dollar within narrow band Note that the Belarusian ruble is pegged to the Euro, Russian Ruble and
U.S. Dollar in a currency basket.
Main article: Currencies related to the euro
Outside the Eurozone, a total of 23 countries and territories which do not belong to the
EU have currencies that are directly pegged to the euro including 14 countries in
mainland Africa (CFA franc and Moroccan dirham), two African island countries
(Comorian franc and Cape Verdean escudo), three French Pacific territories (CFP franc)
and another Balkan country, Bosnia and Herzegovina (Bosnia and Herzegovina
convertible mark). On 28 July 2009, São Tomé and Príncipe signed an agreement with
Portugal which will eventually tie its currency to the euro.
With the exception of Bosnia and Herzegovina (which pegged their currency against the
German mark) and Cape Verde (formerly pegged to the Portuguese escudo) all of these
non-EU countries had a currency peg to the French Franc before pegging their currencies
to the euro. Pegging a country's currency to a major currency is regarded as a safety
measure, especially for currencies of areas with weak economies, as the euro is seen as a
stable currency, prevents runaway inflation and encourages foreign investment due to its
stability.

Within the EU several currencies have a peg to the euro, in most instances as a
precondition to joining the Eurozone. The Bulgarian Lev and the Estonian kroon were
formerly pegged to the German mark, other EU memberstates have a direct peg due to
ERM II: the Danish krone, the Lithuanian litas and the Latvian lats.
In total, over 150 million people in Africa use a currency pegged to the euro, 25 million
people outside the Eurozone in Europe and another 500,000 people on Pacific islands.
5. Economics
5.1 Optimal currency area
Main article: Optimum currency area
In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical

region in which it would maximize economic efficiency to have the entire region share a
single currency. There are two models, both proposed by Robert A. Mundell: the
stationary expectations model and the international risk sharing model. Mundell himself
advocates the international risk sharing model and thus concludes in favour of the euro.
However, even before the creation of the single currency, there were concerns over
diverging economies. Thus, it is possible that the monetary union may fail and the Euro
disappear
5.2 Transaction costs and risks
The most obvious benefit of adopting a single currency is to remove the cost of
exchanging currency, theoretically allowing businesses and individuals to consummate
previously unprofitable trades. For consumers, banks in the Eurozone must charge the
same for intra-member cross-border transactions as purely domestic transactions for
electronic payments (e.g., credit cards, debit cards and cash machine withdrawals).
The absence of distinct currencies also removes exchange rate risks. The risk of
unanticipated exchange rate movement has always added an additional risk or uncertainty
for companies or individuals that invest or trade outside their own currency zones.
Companies that hedge against this risk will no longer need to shoulder this additional
cost. This is particularly important for countries whose currencies had traditionally
fluctuated a great deal, particularly the Mediterranean nations.
Financial markets on the continent are expected to be far more liquid and flexible than
they were in the past. The reduction in cross-border transaction costs will allow larger
banking firms to provide a wider array of banking services that can compete across and
beyond the Eurozone.
5.3 Price parity

Another effect of the common European currency is that differences in prices – in

particular in price levels – should decrease because of the 'law of one price'. Differences
in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely
to exploit the price differential. Therefore, prices on commonly traded goods are likely to
converge, causing inflation in some regions and deflation in others during the transition.
Some evidence of this has been observed in specific markets.
5.4 Macroeconomic stability
Low levels of inflation are the hallmark of stable and modern economies. Because a high
level of inflation acts as a tax (seigniorage) and theoretically discourages investment, it is
generally viewed as undesirable. In spite of the downside, many countries have been
unable or unwilling to deal with serious inflationary pressures. Some countries have
successfully contained them by establishing largely independent central banks. One such
bank was the Bundesbank in Germany; as the European Central Bank is modelled on the
Bundesbank, it is independent of the pressures of national governments and has a
mandate to keep inflationary pressures low.Member countries that join the bank commit
to lower inflation, hoping to enjoy the macroeconomic stability associated with low
levels of expected inflation. The ECB (unlike the Federal Reserve in the United States of
America) does not have a second objective to sustain growth and employment.
Many national and corporate bonds denominated in euro are significantly more liquid
and have lower interest rates than was historically the case when denominated in legacy
currencies. While increased liquidity may lower the nominal interest rate on the bond,
denominating the bond in a currency with low levels of inflation arguably plays a much
larger role. A credible commitment to low levels of inflation and a stable debt reduces
the risk that the value of the debt will be eroded by higher levels of inflation or default in
the future, allowing debt to be issued at a lower nominal interest rate.
5.5 Evidence on the effect of the introduction of the euro
In conformity with the economic predictions, empirical studies have found that the
introduction of the euro has had a positive impact on the movement of goods, financial
assets, and people within the Eurozone. In addition, countries which previously had weak
currencies have benefited from lower interest rates and their firms now have easier access
to capital.
5.5.1 Trade
The consensus from the studies of the effect of the introduction of the euro is that it has
increased trade within the euro area by 5% to 10%. On the lower bound, one study
suggested an increase of 3%. A recent study estimates this effect to be between 9 and
14%.
5.5.2 Investment

Studies have found a positive effect of the introduction of the euro on investment.
Physical investment seems to have increased by 5% in the Eurozone due to the
introduction. Regarding foreign direct investment, a study found that the intra-Eurozone
FDI stocks have increased by about 20% during the first four years of the EMU.
Concerning the effect on corporate investment, there is evidence that the introduction of
the euro has resulted in an increase in investment rates and that it has made it easier for
firms to access financing in Europe. The euro has most specifically stimulated investment
in companies that come from countries that previously had weak currencies. A study
found that the introduction of the euro accounts for 22% of the investment rate after 1998
in countries that previously had a weak currency. The effect is however less clear for
firms coming from the strong currency countries; the introduction has not been beneficial
for most of them.
5.5.3 Inflation
The introduction of the euro has led to extensive discussion about its possible effect on
inflation. In the short term, there was a widespread impression in the population of the
Eurozone that the introduction of the euro had led to an increase in prices. Paradoxically,
this impression has not been supported by general indices of inflation, showing no major
effect of the introduction of the euro. A study of this paradox has found that it is due to
an asymmetric effect of the introduction of the euro on prices: while it had no effect on
most goods, it had an effect on cheap goods which have seen their price round up after
the introduction of the euro. The study found that consumers based their beliefs on
inflation of those cheap goods which are frequently purchased. It has also been suggested
that the jump in small prices may be due to the fact that prior to the introduction, retailers
made fewer upward adjustments and waited for the introduction of the euro to do so.
5.5.4 Exchange rate risk
One of the advantages of the adoption of a common currency is the reduction of the risk
associated with changes in currency exchange rates. It has been found that the
introduction of the euro created "significant reductions in market risk exposures for
nonfinancial firms both in and outside of Europe". These reductions in market risk "were
concentrated in firms domiciled in the Euro area and in non-Euro firms with a high
fraction of foreign sales or assets in Europe". These changes were however "statistically
and economically small".
5.5.5 Financial integration
The introduction of the euro seems to have had a strong effect on European financial
integration. According to a study on this question, it has "significantly reshaped the
European financial system, especially with respect to the securities markets [...]
However, the real and policy barriers to integration in the retail and corporate banking
sectors remain significant, even if the wholesale end of banking has been largely
integrated." Specifically, the euro has significantly decreased the cost of trade in bonds,
equity, and banking assets within the Eurozone. On a global level, there is evidence that

the introduction of the euro has led to an integration in terms of investment in bond
portfolios, with Eurozone countries lending and borrowing more between each other than
with other countries.
5.5.6 Effect on interest rates
The introduction of the euro has decreased the interest rates of most members countries,
in particular those with a weak currency. As a consequence the market value of firms
from countries which previously had a weak currency has very significantly
increased.The countries who benefited the most from a decrease in interest rates are
Greece, Ireland, Portugal, Spain, and Italy.
5.5.7 Price convergence
The evidence on the convergence of prices in the Eurozone with the introduction of the
euro is mixed. Several studies failed to find any evidence of convergence following the
introduction of the euro after a phase of convergence in the early 1990s.Other studies
have found evidence of price convergence, in particular for cars. A possible reason for
the divergence between the different studies is that the processes of convergence may not
have been linear, slowing down substantially between 2000 and 2003, and resurfacing
after 2003 as suggested by a recent study (2009).
5.5.8 Tourism
A study has found that the introduction of the euro has had a positive effect on tourism
flows within the EMU, with an increase of 6.5%.
6. Exchange rates
U.S. dollars per 1 euro 1999–2009
Lowest ↓ Highest ↑
Year
Date Rate Date Rate
1999 03 Dec $1.0015 05 Jan $1.1790
2000 26 Oct $0.8252 06 Jan $1.0388
2001 06 Jul $0.8384 05 Jan $0.9545
2002 28 Jan $0.8578 31 Dec $1.0487
2003 08 Jan $1.0377 31 Dec $1.2630
2004 14 May $1.1802 28 Dec $1.3633
2005 15 Nov $1.1667 03 Jan $1.3507
2006 02 Jan $1.1826 05 Dec $1.3331
2007 12 Jan $1.2893 27 Nov $1.4874
2008 27 Oct $1.2460 15 Jul $1.5990
2009 05 Mar $1.2555 03 Dec $1.5120
2010 25 Feb $1.3489 13 Jan $1.4563

6.1 Flexible exchange rates
The ECB targets interest rates rather than exchange rates and in general does not
intervene on the foreign exchange rate markets, because of the implications of the
Mundell-Fleming Model which suggest that a central bank cannot maintain interest rate
and exchange rate targets simultaneously because increasing the money supply results in
a depreciation of the currency. In the years following the Single European Act, the EU
has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the
exchange rate regime of the euro is flexible, or floating.
6.2 Against other major currencies
After the introduction of the euro, its exchange rate against other currencies fell heavily,
especially against the U.S. dollar. From an introduction at US$1.18/€, the euro fell to a
low of $0.8228/€ by 26 October 2000. After the appearance of the coins and notes on 1
January 2002 and the replacement of all national currencies, the euro began steadily
appreciating, and regained parity with the U.S. dollar, on 15 July 2002. The euro has not
fallen below parity with the U.S. dollar since December 2002 but has risen in value.
Exchange rate evolution of the euro compared to USD, JPY and GBP. Exchange rate at
start is put to 1.
Green: in Jan-1999: €1 = $1.18 ; in Jul-2008: €1 = $1.57
Red: in Jan-1999: €1 = ¥133 ; in Jul-2008: €1 = ¥168
Blue: in Jan-1999: €1 = £0.71 ; in Jul-2008: €1 = £0.80
On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At
the end of 2004, it reached $1.3668 (€0.7316/$) as the U.S. dollar fell against all major
currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to
$1.18 (€0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In
November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one
record high after another. On 15 July 2008, the euro rose to an all-time high of $1.5990
(€0.6254/$). In a reversal, in August 2008 the euro began to drop against the U.S. dollar.
In just two weeks the euro fell from its peak to $1.48 and by late October it reached a two
and a half year low below $1.25 before moving back above $1.50 by November 2009.On
29 December 2008, the pound sterling fell to an all-time low of £0.97855 (€1.0219/£)
against the euro, although its value recovered somewhat in 2009.In February 2010,
concerns over the solvency of Greece prompted fears that the monetary union may end,
causing a rapid drop in the exchange rate against the dollar.
• Current and historical exchange rates against 29 other currencies (European

Central Bank)
• Current dollar/euro exchange rates (BBC)

• Historical exchange rate from 1971 until now
Current EUR exchange rates
From Google Finance: AUD CAD CHF GBP HKD JPY USD RUB CNY TWD
From Yahoo! Finance: AUD CAD CHF GBP HKD JPY USD RUB CNY TWD
From XE.com: AUD CAD CHF GBP HKD JPY USD RUB CNY TWD
From OANDA.com: AUD CAD CHF GBP HKD JPY USD RUB CNY TWD
7. Linguistic issues
Linguistic issues concerning the euro
The formal titles of the currency are euro for the major unit and cent for the minor (one
hundredth) unit and for official use in most Eurozone languages; according to the ECB,
all languages should use the same spelling for the nominative singular. This may
contradict normal rules for word formation in some languages; e.g., those where there is
no eu diphthong. Bulgaria has negotiated an exception; euro in the Cyrillic alphabet is
spelled as eвро (evro) and not eуро (euro) in all official documents. The European
Commission's Directorate-General for Translation states clearly that the plural forms
euros and cents should be used in English.
8. Currency
In economics, the term currency can refer either to a particular currency, for example the
US dollar, or to the coins and banknotes of a particular currency, which comprise the
physical aspects of a nation's money supply. The other part of a nation's money supply
consists of money deposited in banks (sometimes called deposit money), ownership of
which can be transferred by means of cheques or other forms of money transfer such as
credit and debit cards. Deposit money and currency are money in the sense that both are
acceptable as a means of exchange, but money need not necessarily be currency.
Historically, money in the form of currency has predominated. Usually (gold or silver)
coins of intrinsic value commensurate with the monetary unit (commodity money), have
been the norm. By contrast, modern currency, as fiat money, is intrinsically worthless.
The prevalence of one type of currency over another in commodity money systems has

arisen, usually when a government designates through decrees, that only particular
monetary units shall be accepted in payment for taxes.
9. Control and production

In most cases, each private central bank has monopoly control over the supply and
production of its own currency. To facilitate trade between these currency zones, there
are different exchange rates, which are the prices at which currencies (and the goods and
services of individual currency zones) can be exchanged against each other. Currencies
can be classified as either floating currencies or fixed currencies based on their exchange
rate regime.
In cases where a country does have control of its own currency, that control is exercised
either by a central bank or by a Ministry of Finance. In either case, the institution that has
control of monetary policy is referred to as the monetary authority. Monetary authorities
have varying degrees of autonomy from the governments that create them. In the United
States, the Federal Reserve System operates without direct oversight by the legislative or
executive branches. It is important to note that a monetary authority is created and
supported by its sponsoring government, so independence can be reduced or revoked by
the legislative or executive authority that creates it. However, in practical terms, the
revocation of authority is not likely. In almost all Western countries, the monetary
authority is largely independent from the government.
Several countries can use the same name for their own distinct currencies (e.g., dollar in
Canada and the United States). By contrast, several countries can also use the same
currency (e.g., the euro), or one country can declare the currency of another country to be
legal tender. For example, Panama and El Salvador have declared U.S. currency to be
legal tender, and from 1791–1857, Spanish silver coins were legal tender in the United
States. At various times countries have either re-stamped foreign coins, or used currency
board issuing one note of currency for each note of a foreign government held, as
Ecuador currently does.
Each currency typically has a main currency unit (the U.S. dollar, for example, or the
euro) and a fractional currency, often valued at 1⁄100 of the main currency: 100 cents = 1
dollar, 100 centimes = 1 franc, 100 pence = 1 pound, although units of 1⁄10 or 1⁄1000 are also
common. Some currencies do not have any smaller units at all, such as the Icelandic
króna.
Mauritania and Madagascar are the only remaining countries that do not use the decimal
system; instead, the Mauritanian ouguiya is divided into 5 khoums, while the Malagasy
ariary is divided into 5 iraimbilanja. In these countries, words like dollar or pound "were
simply names for given weights of gold." Due to inflation khoums and iraimbilanja have
in practice fallen into disuse. (See non-decimal currencies for other historic currencies
with non-decimal divisions.)

10. Coinage
These factors led to the shift of the store of value being the metal itself: at first silver,
then both silver and gold. Metals were mined, weighed, and stamped into coins. This was
to assure the individual taking the coin that he was getting a certain known weight of
precious metal. Coins could be counterfeited, but they also created a new unit of account,
which helped lead to banking. Archimedes' principle was that the next link in currency
occurred: coins could now be easily tested for their fine weight of metal, and thus the
value of a coin could be determined, even if it had been shaved, debased or otherwise
tampered with
In most major economies using coinage, copper, silver and gold formed three tiers of
coins. Gold coins were used for large purchases, payment of the military and backing of
state activities. Silver coins were used for large, but common, transactions, and as a unit
of account for taxes, dues, contracts and fealty, while copper coins represented the
coinage of common transaction. This system had been used in ancient India since the
time of the Mahajanapadas. In Europe, this system worked through the medieval period
because there was virtually no new gold, silver or copper introduced through mining or
conquest.Thus the overall ratios of the three coinages remained roughly equivalent.
11.
Eurozone
Eurozone (euro area)

Eurozone as of 2010 Non-eurozone states using the

euro Estonia; potentially adopting in 2011
Currency euro
Union type Economic & Monetary
Established 1999
Members 16[show]
Governance
Political control Euro Group
Group president Jean-Claude Juncker
Issuing authority European Central Bank
ECB president Jean-Claude Trichet
Affiliated with European Union
Statistics
Population 328,597,348
GDP (PPP) €8.4 trillion[1]
Interest rate 1%[2][3]
Inflation 0.3%[4]
Unemployment 10%[5]
Trade balance €22.3 bn surplus[6]
The eurozone officially the euro area, is an economic and monetary union (EMU) of 16
European Union (EU) member states which have adopted the euro currency as their sole
legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,
Slovakia, Slovenia and Spain. Eight (not including Sweden, which has a de facto opt out)
other states are obliged to join the zone once they fulfil the strict entry criteria.
Monetary policy of the zone is the responsibility of the European Central Bank, though
there is no common representation, governance or fiscal policy for the currency union.
Some cooperation does however take place through the euro group, which makes
political decisions regarding the eurozone and the euro.
The term "eurozone" or "euro area" can also be taken informally to include third
countries that have adopted the euro, for example Montenegro (see details on these

countries below). Three European microstates–Monaco, San Marino and the Vatican
City–have concluded agreements with the European Union permitting them to use the
euro as their official currency and mint coins, but they are neither formally part of the
eurozone nor represented on the board of the European Central Bank.
12. Members
In 1998 eleven EU member-states had met the convergence criteria, and the eurozone
came into existence with the official launch of the euro on 1 January 1999. Greece
qualified in 2000 and was admitted on 1 January 2001. Physical coins and banknotes
were introduced on 1 January 2002. Slovenia qualified in 2006 and was admitted on 1
January 2007. Cyprus and Malta qualified in 2007 and were admitted on 1 January 2008.
Slovakia qualified in 2008 and joined on 1 January 2009. As of 2009 there are 16
member states with 329 million people in the eurozone.
EU Eurozone (16) EU states obliged to join the Eurozone (9) EU state with an opt-out
on Eurozone participation (1 - UK) EU state planning to hold a referendum on the euro (1 -
Denmark) States outside the EU with issuing rights (3) Other non-EU users (4) v • d • e
State Adopted Population Exceptions
Austria 1 January 1999 8,356,707
Belgium 1 January 1999 10,741,048
Cyprus 1 January 2008 801,622 Northern Cyprus[12]
Finland 1 January 1999 5,325,115
France 1 January 1999 64,105,125 New Caledonia[13]
French Polynesia[13]

Wallis and Futuna[13]

Germany 1 January 1999 82,062,249
Greece 1 January 2001 11,262,539
Ireland 1 January 1999 4,517,758
Italy 1 January 1999 60,090,430 Campione d'Italia[14]
Luxembourg 1 January 1999 491,702
Malta 1 January 2008 412,614
Aruba[15]
Netherlands 1 January 1999 16,481,139
Netherlands Antilles[16]
Portugal 1 January 1999 10,631,800
Slovakia 1 January 2009 5,411,062
Slovenia 1 January 2007 2,053,393
Spain 1 January 1999 45,853,045
Eurozone 328,597,348
13. Enlargement
Enlargement of the eurozone
eurozone countries ERM II members EU member with currency pegged to the euro
(Bulgaria) EU members with free-floating currencies non-EU members not pegged to the
euro non-EU members using the euro non-EU member with currency pegged to the euro
(Bosnia and Herzegovina)

Eleven countries, Denmark, Sweden, the United Kingdom, Bulgaria, the Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Poland, Romania are in the European Union but do
not use the euro. Before a state can join the eurozone, it must spend two years in the
European Exchange Rate Mechanism (ERM II). As of the 1 January 2008, five National
Central Banks (NCBs) participated in the mechanism (see table below). The remaining
currencies are expected to follow as soon as they meet the criteria. Estonia, Latvia,
Lithuania and Denmark are all members of ERM II and hence are in a position to join
quickly once approved, however few countries now have a formal target date and only
Estonia is expected to gain approval in 2010 for accession in 2011.
Denmark and the United Kingdom obtained special opt-outs in the original Maastricht
Treaty of the European Union. Both countries are legally exempt from joining the
eurozone unless their governments decide otherwise, either by parliamentary vote or
referendum. The current Danish government has announced plans to hold a referendum
on the issue following the adoption of the Treaty of Lisbon. Sweden gained a de facto
opt-out by using a legal loophole. It is required to join the Euro as soon as it fulfills the
convergence criteria, which includes being part of ERM II for two years. However
joining ERM II is voluntary and as Sweden has so far decided to stay outside of the Euro
it has not joined ERM II.
The 2008 financial crisis has increased interest in Denmark and Poland to join the
eurozone, and in Iceland to join the European Union, a pre-condition for adopting the
euro. On the other hand, since Latvia is asking for help from the International Monetary
Fund (IMF), it is possible that the IMF will force Latvia to give up its currency peg as a
precondition; officially taking Latvia out of the ERM II and possibly moving the euro
adoption date even further from 2013 than currently planned.
Estonia is currently the only state with a chance of adopting in the short term. It is
expected to be ready for 2011 and is meeting the criteria, although the final decision is
yet to be made.
A clickable Euler diagram showing the relationships between various multinational

European organisations.

14. Non-member usage
International status and usage of the euro
The euro is used beyond the EU states which have joined the economic and monetary
union. Three states, Monaco, San Marino and Vatican City, have signed formal
agreements with the EU to use the euro, and to mint their own coins. However, although
they have formally adopted the euro and mint coins, they are not considered part of the
eurozone by the ECB and do not have a seat in the ECB or Euro Group.
Several other countries have officially adopted the euro as their sole currency, such as
Andorra, Kosovo and Montenegro, without even an agreement. These states are also not
considered part of the official eurozone by the ECB. However, in some usage, the term
eurozone is applied to all such states and territories that have adopted the euro as their
sole currency. Further unilateral adoption of the euro (euroisation), by both non-euro EU
and non-EU members, is opposed by the ECB and EU.
15.
Global currency reserves
Currency composition of official foreign exchange reserves
v•d•e '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
US 59.0 62.1 65.2 69.3 70.9 70.5 70.7 66.5 65.8 65.9 66.4 65.7 64.1 64.0
dollar % % % % % % % % % % % % % %
17.9 18.8 19.8 24.2 25.3 24.9 24.3 25.2 26.3 26.5
Euro
% % % % % % % % % %
Germa 15.8 14.7 14.5 13.8
n mark % % % %
Pound
2.1% 2.7% 2.6% 2.7% 2.9% 2.8% 2.7% 2.9% 2.6% 3.3% 3.6% 4.2% 4.7% 4.1%
sterling
Japane
6.8% 6.7% 5.8% 6.2% 6.4% 6.3% 5.2% 4.5% 4.1% 3.9% 3.7% 3.2% 2.9% 3.3%
se yen
French
2.4% 1.8% 1.4% 1.6%
franc
Swiss
0.3% 0.2% 0.4% 0.3% 0.2% 0.3% 0.3% 0.4% 0.2% 0.2% 0.1% 0.2% 0.2% 0.1%
franc
13.6 11.7 10.2
Other 6.1% 1.6% 1.4% 1.2% 1.4% 1.9% 1.8% 1.9% 1.5% 1.8% 2.0%
% % %
16.

European Union
The European Union (EU) is an economic, political and cultural union of 27 member
states,located primarily in Europe. Committed to regional integration, the EU was
established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the
European Communities.With over 500 million citizens,the EU combined generates an
estimated 30% share (US$ 18.4 trillion in 2008) of the nominal gross world product and
about 22% (US$15.2 trillion in 2008) of the PPP gross world product.
The EU has developed a single market through a standardised system of laws which
apply in all member states, ensuring the free movement of people, goods, services, and
capital.It maintains common policies on trade,agriculture, fisheries and regional
development. Sixteen member states have adopted a common currency, the euro,
constituting the Eurozone. The EU has developed a limited role in foreign policy, having
representation at the World Trade Organization, G8, G-20 major economies and at the
United Nations. It enacts legislation in justice and home affairs, including the abolition of
passport controls by the Schengen Agreement between 22 EU and 3 non-EU states.
As an international organisation, the EU operates through a hybrid system of

supranationalism and intergovernmentalism. In certain areas, decisions are made through
negotiation between member states, while in others, independent supranational
institutions are responsible without a requirement for unanimity between member states.
Important institutions of the EU include the European Commission, the Council of the
European Union, the European Council, the Court of Justice of the European Union, and
the European Central Bank. The European Parliament is elected every five years by
member states' citizens, to whom the citizenship of the European Union is guaranteed.
The EU traces its origins from the European Coal and Steel Community formed among
six countries in 1951 and the Treaty of Rome formed in 1957 by the same states. Since
then, the EU has grown in size through enlargement, and in power through the addition
of policy areas to its remit.
16.1 History
After World War II, moves towards European integration were seen by many as an
escape from the extreme forms of nationalism which had devastated the continent. One
such attempt to unite Europeans was the European Coal and Steel Community which,
while having the modest aim of centralised control of the previously national coal and
steel industries of its member states, was declared to be "a first step in the federation of
Europe".The originators and supporters of the Community include Jean Monnet, Robert
Schuman, Paul Henri Spaak, and Alcide de Gasperi. The founding members of the
Community were Belgium, France, Italy, Luxembourg, the Netherlands, and West
Germany.

In 1957, these six countries signed the Treaties of Rome which extended the earlier
cooperation within the European Coal and Steel Community and created the European
Economic Community, (EEC) establishing a customs union and the European Atomic
Energy Community (Euratom) for cooperation in developing nuclear energy. In 1967 the
Merger Treaty created a single set of institutions for the three communities, which were
collectively referred to as the European Communities (EC), although commonly just as
the European Community.
In 1973, the Communities enlarged to include Denmark, Ireland, and the United
Kingdom.Norway had negotiated to join at the same time but Norwegian voters rejected
membership in a referendum and so Norway remained outside. In 1979, the first direct,
democratic elections to the European Parliament were held.
Greece joined in 1981, and Spain and Portugal in 1986.In 1985, the Schengen Agreement
led the way toward the creation of open borders without passport controls between most
member states and some non-member states.[28] In 1986, the European flag began to be
used by the Community and the Single European Act was signed.
The Iron Curtain's fall enabled eastward enlargement. (Berlin Wall)
In 1990, after the fall of the Iron Curtain, the former East Germany became part of the
Community as part of a newly united Germany.With enlargement towards Eastern and
Central Europe on the agenda, the Copenhagen criteria for candidate members to join the
European Union were agreed.
The European Union was formally established when the Maastricht Treaty came into
force on 1 November 1993,and in 1995 Austria, Sweden, and Finland joined the newly
established EU. In 2002, euro notes and coins replaced national currencies in 12 of the
member states. Since then, the eurozone has increased to encompass sixteen countries. In
2004, the EU saw its biggest enlargement to date when Malta, Cyprus, Slovenia, Estonia,
Latvia, Lithuania, Poland, the Czech Republic, Slovakia, and Hungary joined the Union.
On 1 January 2007, Romania and Bulgaria became the EU's newest members and
Slovenia adopted the euro.In June 2009, the 2009 Parliament elections were held leading
to a renewal of Barroso's Commission Presidency ,and in July 2009 Iceland formally
applied for EU membership. On 1 December 2009, the Lisbon Treaty came into force
after a protracted and controversial birth. This reformed many aspects of the EU but in
particular created a permanent President of the European Council, the first of which is
Herman van Rompuy, and a strengthened High Representative, Catherine Ashton.
16.2 Member states

Main article: Member State of the European Union
See also: Special Member State territories and the European Union, Enlargement of the
European Union, Future enlargement of the European Union, and Withdrawal from the
European Union

The European Union is composed of 27 sovereign Member States: Austria, Belgium,
The continental territories of the member states of the European Union (European
Communities pre-1993), animated in order of accession.
Albania
Austria
Belarus
Belgium
Bos.
& Herz.
Bulgaria
Croatia
Cyprus
Czech
Rep.
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Latvia
Lithuania
Luxembourg
Mac.
Malta→
Moldova
Mont.
Netherlands
Norway
Poland
Portugal
Romania
Russia S.P.B.Patel Engg. College (MBA Programme) 23
Serbia
Slovakia
Slovenia
The Union's membership has grown from the original six founding states–Belgium,
France, (then-West) Germany, Italy, Luxembourg and the Netherlands–to the present day
27 by successive enlargements as countries acceded to the treaties and by doing so,
pooled their sovereignty in exchange for representation in the institutions.[33]
To join the EU a country must meet the Copenhagen criteria, defined at the 1993
Copenhagen European Council. These require a stable democracy that respects human
rights and the rule of law; a functioning market economy capable of competition within
the EU; and the acceptance of the obligations of membership, including EU law.
Evaluation of a country's fulfilment of the criteria is the responsibility of the European
Council.
No member state has ever left the Union, although Greenland (an autonomous province
of Denmark) withdrew in 1985. The Lisbon Treaty now provides a clause dealing with
how a member leaves the EU.
There are three official candidate countries, Croatia, Macedonia and Turkey. Albania,
Bosnia and Herzegovina, Montenegro, Serbia and Iceland are officially recognised as
potential candidates.Kosovo is also listed as a potential candidate but the European
Commission does not list it as an independent country because not all member states
recognise it as an independent country separate from Serbia.
Four Western European countries that have chosen not to join the EU have partly
committed to the EU's economy and regulations: Iceland, which has now applied for
membership, Liechtenstein and Norway, which are a part of the single market through
the European Economic Area, and Switzerland, which has similar ties through bilateral
treaties.[37][38] The relationships of the European microstates, Andorra, Monaco, San
Marino and the Vatican include the use of the euro and other areas of co-operation.
16.3 Geography
The territory of the EU consists of the combined territories of its 27 member states with
some exceptions, outlined below. The territory of the EU is not the same as that of
Europe, as parts of the continent are outside the EU, such as Switzerland, Norway,
European Russia, and Iceland. Some parts of member states are not part of the EU,
despite forming part of the European continent (for example the Isle of Man and Channel
Islands (two Crown Dependencies), and the Faroe Islands (a territory of Denmark)). The
island country of Cyprus, a member of the EU, is closer to Turkey than to continental
Europe and is often considered part of Asia.
The EU's climate is influenced by its 65,993 km (41,006 mi) coastline
Several territories associated with member states that are outside geographic Europe are
also not part of the EU (such as Greenland, Aruba, the Netherlands Antilles, and all the
non-European British overseas territories). Some overseas territories are part of the EU
even though geographically not part of Europe, such as the Azores, the Canary Islands,

Madeira, Lampedusa, French Guiana, Guadeloupe, Saint Barthélemy, Martinique and

Réunion, Ceuta and Melilla. As well, although being technically part of the EU,EU law is
suspended in Northern Cyprus as it is under the de facto control of the Turkish Republic
of North Cyprus, a self-proclaimed state that is recognised only by Turkey.
The EU's member states cover an area of 4,422,773 square kilometres (1,707,642 sq mi).
[43]
The EU is larger in area than all but six countries, and its highest peak is Mont Blanc
in the Graian Alps, 4,807 metres (15,771 ft) above sea level. The landscape, climate, and
economy of the EU are influenced by its coastline, which is 65,993 kilometres
(41,006 mi) long. The EU has the world's second-longest coastline, after Canada. The
combined member states share land borders with 19 non-member states for a total of
12,441 kilometres (7,730 mi), the fifth-longest border in the world.
Including the overseas territories of member states, the EU experiences most types of
climate from Arctic to tropical, rendering meteorological averages for the EU as a whole
meaningless. The majority of the population lives in areas with a Mediterranean climate
(Southern Europe), a temperate maritime climate (Western Europe), or a warm summer
continental or hemiboreal climate (Eastern Europe).
16.4 Governance
Politics of the European Union and Institutions of the European Union
The institutions of the EU operate solely within those competencies conferred on it upon
the treaties and according to the principle of subsidiarity (which dictates that action by
the EU should only be taken where an objective cannot be sufficiently achieved by the
member states alone). Law made by the EU institutions is passed in a variety of forms,
primarily that which comes into direct force and that which must be passed in a refined
form by national parliaments.
Legislative competencies are divided equally, with some exceptions, between the
European Parliament and the Council of the European Union while executive tasks are
carried out by the European Commission and in a limited capacity by the European
Council (not to be confused with the aforementioned Council of the European Union).
The interpretation and the application of EU law and the treaties are ensured by the Court
of Justice of the European Union. There are also a number of ancillary bodies which
advise the EU or operate in a specific area.
16.5 European Council

The President of the European Council, Herman Van Rompuy
The EU receives its political leadership from the European Council, which usually meets
four times a year. It comprises one representative per member state—either its head of
state or head of government—plus its President as well as the President of the
Commission. The member states' representatives are assisted by their Foreign Ministers.
The European Council uses its leadership role to sort out disputes between member states
and the institutions, and to resolve political crises and disagreements over controversial
issues and policies. The European Council should not be mistaken for the Council of
Europe, an international organisation independent from the EU.
On 19 November 2009, Herman Van Rompuy was chosen as the first President of the
European Council and Catherine Ashton was chosen as the High Representative of the
Union for Foreign Affairs and Security Policy. They both assumed office on 1 December
2009.
Council
The Council (also called "Council of the European Union" and sometimes referred to as
the "Council of Ministers") forms one half of the EU's legislature. It consists of a
government minister from each member state and meets in different compositions
depending on the policy area being addressed. Notwithstanding its different
compositions, it is considered to be one single body. In addition to its legislative
functions, the Council also exercises executive functions in relations to the Common
Foreign and Security Policy.
16.6 Commission
Commission President José Manuel Barroso

The European Commission acts as the EU's executive arm and is responsible for
initiating legislation and the day-to-day running of the EU. It is intended to act solely in
the interest of the EU as a whole, as opposed to the Council which consists of leaders of
member states who reflect national interests. The commission is also seen as the motor of
European integration. It is currently composed of 27 commissioners for different areas of
policy, one from each member state. The President of the Commission and all the other
commissioners are nominated by the Council. Appointment of the Commission
President, and also the Commission in its entirety, have to be confirmed by Parliament.[50]
Parliament
The seat of the European Parliament in Strasbourg.
The European Parliament forms the other half of the EU's legislature. The 736 (soon to
be 750) Members of the European Parliament (MEPs) are directly elected by EU citizens
every five years. Although MEPs are elected on a national basis, they sit according to
political groups rather than their nationality. Each country has a set number of seats and
in some cases is divided into sub-national constituencies. The Parliament and the Council
of Ministers pass legislation jointly in nearly all areas under the ordinary legislative
procedure. This also applies to the EU budget. Finally, the Commission is accountable to
Parliament, requiring its approval to take office, having to report back to it and subject to
motions of censure from it. The President of the European Parliament carries out the role
of speaker in parliament and represents it externally. The president and vice presidents
are elected by MEPs every two and a half years.
Courts
The judicial branch of the EU—formally called the Court of Justice of the European
Union—consists of three courts: the Court of Justice, the General Court, and the
European Union Civil Service Tribunal. Together they interpret and apply the treaties
and the law of the EU.
The Court of Justice primarily deals with cases taken by member states, the institutions,
and cases referred to it by the courts of member states.The General Court mainly deals
with cases taken by individuals and companies directly before the EU's courts,and the
European Union Civil Service Tribunal adjudicates in disputes between the European
Union and its civil service.Decisions from the General Court can be appealed to the
Court of Justice but only on a point of law.

16.7 Legal system

Law of the European Union, Treaties of the European Union, and European Union
legislative procedure
The EU is based on a series of treaties. These first established the European Community
and the EU, and then made amendments to those founding treaties.These are power-
giving treaties which set broad policy goals and establish institutions with the necessary
legal powers to implement those goals. These legal powers include the ability to enact
legislation which can directly affect all member states and their inhabitants. Under the
principle of supremacy, national courts are required to enforce the treaties that their
member states have ratified, and thus the laws enacted under them, even if doing so
requires them to ignore conflicting national law, and (within limits) even constitutional
provisions.
The main legal acts of the EU come in three forms: regulations, directives, and decisions.
Regulations become law in all member states the moment they come into force, without
the requirement for any implementing measures, and automatically override conflicting
domestic provisions.Directives require member states to achieve a certain result while
leaving them discretion as to how to achieve the result. The details of how they are to be
implemented are left to member states.
When the time limit for implementing directives passes, they may, under certain
conditions, have direct effect in national law against member states. Decisions offer an
alternative to the two above modes of legislation. They are legal acts which only apply to
specified individuals, companies or a particular member state. They are most often used
in Competition Law, or on rulings on State Aid, but are also frequently used for
procedural or administrative matters within the institutions. Regulations, directives, and
decisions are of equal legal value and apply without any formal hierarchy.
One of the complicating features of the EU's legal system is the multiplicity of legislative
procedures used to enact legislation. The treaties micro-manage the EU's powers,
indicating different ways of adopting legislation for different policy areas and for
different areas within the same policy areas. A common feature of the EU's legislative
procedures, however, is that almost all legislation must be initiated by the Commission,
rather than member states or European parliamentarians.The two most common
procedures are co-decision, under which the European Parliament can veto proposed
legislation, and consultation, under which Parliament is only permitted to give an opinion
which can be ignored by European leaders. In most cases legislation must be agreed by
the council.
National courts within the member states play a key role in the EU as enforcers of EU
law, and a "spirit of cooperation" between EU and national courts is laid down in the
Treaties. National courts can apply EU law in domestic cases, and if they require
clarification on the interpretation or validity of any EU legislation related to the case it
may make a reference for a preliminary ruling to the Court of Justice. The right to declare
EU legislation invalid however is reserved to the EU courts.

16.8 Fundamental rights
As a product of efforts to establish a written fundamental rights code, the EU drew up the
Charter of Fundamental Rights in 2000. The Charter is legally binding since the Lisbon
Treaty has come into force.Also, the Court of Justice gives judgements on fundamental
rights derived from the "constitutional traditions common to the member states,"and may
even invalidate EU legislation based on its failure to adhere to these fundamental rights.
Although signing the European Convention on Human Rights (ECHR) is a condition for
EU membership,the EU itself is not covered by the convention as it is neither a state nor
has the competence to accede.Nonetheless the Court of Justice and European Court of
Human Rights co-operate to ensure their case-law does not conflict. Since the entry into
force of the Lisbon Treaty, the EU has been required to accede to the ECHR. The EU
opposes the death penalty and promotes its world wide abolition.Abolition of the death
penalty is a condition for EU membership.
16.9 Foreign relations

Foreign relations of the European Union and Common Foreign and Security Policy
EU member states have a standardised passport design, burgundy coloured with the name
of the member state, Coat of Arms and with the words "European Union" given in their
official language(s) at the top; in this case those of Ireland.
Foreign policy cooperation between member states dates from the establishment of the
Community in 1957, when member states negotiated as a bloc in international trade
negotiations under the Common Commercial Policy. Steps for a more wide ranging
coordination in foreign relations began in 1970 with the establishment of European
Political Cooperation which created an informal consultation process between member
states with the aim of forming common foreign policies. It was not, however, until 1987
when European Political Cooperation was introduced on a formal basis by the Single
European Act. EPC was renamed as the Common Foreign and Security Policy (CFSP) by
the Maastricht Treaty.
The Maastricht Treaty gives the CFSP the aims of promoting both the EU's own interests
and those of the international community as a whole. This includes promoting
international co-operation, respect for human rights, democracy, and the rule of law.
The Amsterdam Treaty created the office of the High Representative for the Common
Foreign and Security Policy (currently held by Catherine Ashton) to co-ordinate the EU's
foreign policy. The High Representative, in conjunction with the current Presidency,
speaks on behalf of the EU in foreign policy matters and can have the task of articulating
ambiguous policy positions created by disagreements among member states. The
Common Foreign and Security Policy requires unanimity among the now 27 member

states on the appropriate policy to follow on any particular issue. The unanimity and
difficult issues treated under the CFSP makes disagreements, such as those which
occurred over the war in Iraq, not uncommon.
Besides the emerging international policy of the European Union, the international
influence of the EU is also felt through enlargement. The perceived benefits of becoming
a member of the EU act as an incentive for both political and economic reform in states
wishing to fulfil the EU's accession criteria, and are considered an important factor
contributing to the reform of former Communist countries in Central and Eastern Europe.
This influence on the internal affairs of other countries is generally referred to as "soft
power", as opposed to military "hard power".
The EU participates in all G8 summits. (Heiligendamm, Germany)
In the UN, as an observer and working together, the EU has gained influence in areas
such as aid due to its large contributions in that field In the G8, the EU has rights of
membership besides chairing/hosting summit meetings and is represented at meetings by
the presidents of the Commission and the Council.In the World Trade Organisation
(WTO), where all 27 member states are represented, the EU as a body is represented by
Trade Commissioner Benita Ferrero-Waldner.
17. Economy
178 of the world's 500 largest corporations are headquartered in EU countries. (HSBC,
UK.)

Main article: Economy of the European Union
Since its origin, the EU has established a single economic market across the territory of
all its members. Currently, a single currency is in use between the 16 members of the
eurozone. If considered as a single economy, the EU generated an estimated nominal
gross domestic product (GDP) of US$18.39 trillion (15.247 trillion international dollars
based on purchasing power parity) in 2008, amounting to over 22% of the world's total
economic output in terms of purchasing power parity, which makes it the largest
economy in the world by nominal GDP and the second largest trade bloc economy in the
world by PPP valuation of GDP. It is also the largest exporter , and largest importer of
goods and services, and the biggest trading partner to several large countries such as
China and India.
178 of the top 500 largest corporations measured by revenue (Fortune Global 500) have
their headquarters in the EU.
In May 2007 unemployment in the EU stood at 7% while investment was at 21.4% of

GDP, inflation at 2.2% and public deficit at −0.9% of GDP.
There is a great deal of variance for annual per capita income within individual EU
states, these range from US$7,000 to US$69,000.
18. Single market
Four Freedoms (European Union)
Two of the original core objectives of the European Economic Community were the
development of a common market, subsequently renamed the single market, and a
customs union between its member states. The single market involves the free circulation
of goods, capital, people and services within the EU, and the customs union involves the
application of a common external tariff on all goods entering the market. Once goods
have been admitted into the market they can not be subjected to customs duties,
discriminatory taxes or import quotas, as they travel internally. The non-EU member
states of Iceland, Norway, Liechtenstein and Switzerland participate in the single market
but not in the customs union. Half the trade in the EU is covered by legislation
harmonised by the EU.
Free movement of capital is intended to permit movement of investments such as

property purchases and buying of shares between countries. Until the drive towards
Economic and Monetary Union the development of the capital provisions had been slow.
Post-Maastricht there has been a rapidly developing corpus of ECJ judgements regarding
this initially neglected freedom. The free movement of capital is unique insofar as that it
is granted equally to non-member states.

The free movement of persons means citizens can move freely between member states to
live, work, study or retire in another country. This required the lowering of
administrative formalities and recognition of professional qualifications of other states.
The free movement of services and of establishment allows self-employed persons to

move between member states in order to provide services on a temporary or permanent
basis. While services account for between sixty and seventy percent of GDP, legislation
in the area is not as developed as in other areas. This lacuna has been addressed by the
recently passed Directive on services in the internal market which aims to liberalise the
cross border provision of services. According to the Treaty the provision of services is a
residual freedom that only applies if no other freedom is being exercised.
19. Monetary union
Euro, Eurozone, and Economic and Monetary Union of the European Union

The European Central Bank in Frankfurt governs the eurozone's monetary policy.
The creation of a European single currency became an official objective of the EU in

1969. However, it was only with the advent of the Maastricht Treaty in 1993 that
member states were legally bound to start the monetary union no later than 1 January
1999. On this date the euro was duly launched by eleven of the then fifteen member
states of the EU. It remained an accounting currency until 1 January 2002, when euro
notes and coins were issued and national currencies began to phase out in the eurozone,
which by then consisted of twelve member states. The eurozone has since grown to
sixteen countries, the most recent being Slovakia which joined on 1 January 2009.
16 EU countries have introduced the euro as their sole currency.
All other EU member states, except Denmark and the United Kingdom, are legally bound
to join the euro when the convergence criteria are met, however only a few countries
have set target dates for accession. Sweden has circumvented the requirement to join the
euro by not meeting the membership criteria.
The euro is designed to help build a single market by, for example: easing travel of
citizens and goods, eliminating exchange rate problems, providing price transparency,
creating a single financial market, price stability and low interest rates, and providing a
currency used internationally and protected against shocks by the large amount of
internal trade within the eurozone. It is also intended as a political symbol of integration
and stimulus for more. Since its launch the euro has become the second reserve currency
in the world with a quarter of foreign exchanges reserves being in euro.
The euro, and the monetary policies of those who have adopted it in agreement with the
EU, are under the control of the European Central Bank (ECB). There are eleven other
currencies used in the EU. A number of other countries outside the EU, such as
Montenegro, use the euro without formal agreement with the ECB.
20. Competition
European Community competition law

European Commissioner for Competition
The EU operates a competition policy intended to ensure undistorted competition within

the single market. The Commission as the competition regulator for the single market is
responsible for antitrust issues, approving mergers, breaking up cartels, working for
economic liberalisation and preventing state aid.
The Competition Commissioner, currently Neelie Kroes, is one of the most powerful
positions in the Commission, notable for the ability to affect the commercial interests of
trans-national corporations. For example, in 2001 the Commission for the first time

prevented a merger between two companies based in the United States (GE and
Honeywell) which had already been approved by their national authority. Another high
profile case against Microsoft, resulted in the Commission fining Microsoft over
€777 million following nine years of legal action.
In negotiations on the Treaty of Lisbon, French President Nicolas Sarkozy succeeded in

removing the words "free and undistorted competition" from the treaties. However, the
requirement is maintained in an annex and it is unclear whether this will have any
practical effect on EU policy.
21. Budget
Budget of the European Union
2006 EU total expenditure. Agriculture: 46.7% Structural Actions: 30.4% Internal

Policies: 8.5% Administration: 6.3% External Actions: 4.9% Pre-Accession Strategy:
2.1% Compensations: 1.0% Reserves: 0.1%
The twenty-seven member state EU had an agreed budget of €120.7 billion for the year
2007 and €864.3 billion for the period 2007–2013, representing 1.10% and 1.05% of the
EU-27's GNI forecast for the respective periods. By comparison, the United Kingdom's
expenditure for 2004 was estimated to be €759 billion, and France was estimated to have
spent €801 billion. In 1960, the budget of the then European Economic Community was
0.03% of GDP.
In the 2006 budget, the largest single expenditure item was agriculture with around
46.7% of the total budget. Next came structural and cohesion funds with approximately
30.4% of the total. Internal policies took up around 8.5%. Administration accounted for
around 6.3%. External actions, the pre-accession strategy, compensations and reserves
brought up the rear with approximately 4.9%, 2.1%, 1% and 0.1% respectively.
22. Development
22.1 Agriculture
Common Agricultural Policy

The Common Agricultural Policy (CAP) is one of the oldest policies of the European
Community, and was one of its core aims. The policy has the objectives of increasing
agricultural production, providing certainty in food supplies, ensuring a high quality of
life for farmers, stabilising markets, and ensuring reasonable prices for consumers. It
was, until recently, operated by a system of subsidies and market intervention. Until the
1990s, the policy accounted for over 60% of the then European Community's annual
budget, and still accounts for around 35%.
EU farms are supported by the CAP, the largest budgetary expenditure. (Vineyard in
Spain)

The policy's price controls and market interventions led to considerable overproduction,
resulting in so-called butter mountains and wine lakes. These were intervention stores of
produce bought up by the Community to maintain minimum price levels. In order to
dispose of surplus stores, they were often sold on the world market at prices considerably
below Community guaranteed prices, or farmers were offered subsidies (amounting to
the difference between the Community and world prices) to export their produce outside
the Community. This system has been criticised for under-cutting farmers in the
developing world.
The overproduction has also been criticised for encouraging environmentally unfriendly
intensive farming methods. Supporters of CAP say that the economic support which it
gives to farmers provides them with a reasonable standard of living, in what would
otherwise be an economically unviable way of life. However, the EU's small farmers
receive only 8% of CAP's available subsidies.
Since the beginning of the 1990s, the CAP has been subject to a series of reforms.
Initially these reforms included the introduction of set-aside in 1988, where a proportion
of farm land was deliberately withdrawn from production, milk quotas (by the McSharry
reforms in 1992) and, more recently, the 'de-coupling' (or disassociation) of the money
farmers receive from the EU and the amount they produce (by the Fischler reforms in
2004). Agriculture expenditure will move away from subsidy payments linked to specific
produce, toward direct payments based on farm size. This is intended to allow the market
to dictate production levels, while maintaining agricultural income levels. One of these
reforms entailed the abolition of the EU's sugar regime, which previously divided the
sugar market between member states and certain African-Caribbean nations with a
privileged relationship with the EU.
22.2 Environment
European Commissioner for the Environment and European Climate Change

Programme
The first environmental policy of the European Community was launched in 1972. Since
then it has addressed issues such as acid rain, the thinning of the ozone layer, air quality,
noise pollution, waste and water pollution. The Water Framework Directive is an
example of a water policy, aiming for rivers, lakes, ground and coastal waters to be of
"good quality" by 2015. Wildlife is protected through the Natura 2000 programme and
covers 30,000 sites throughout Europe. In 2007, the Polish government sought to build a
motorway through the Rospuda valley, but the Commission has been blocking
construction as the valley is a wildlife area covered by the programme.
The Commission have managed to protect the Rospuda valley in Poland.
The REACH regulation was a piece of EU legislation designed to ensure that 30,000
chemicals in daily use are tested for their safety. In 2006, toxic waste spill off the coast of
Côte d'Ivoire, from a European ship, prompted the Commission to look into legislation
regarding toxic waste. With members such as Spain now having criminal laws against

shipping toxic waste, the Commission proposed to create criminal sentences for
"ecological crimes". Although the Commission's right to propose criminal law was
contested, it was confirmed in this case by the Court of Justice.
In 2007, member states agreed that the EU is to use 20% renewable energy in the future
and that is has to reduce carbon dioxide emissions in 2020 by at least 20% compared to
1990 levels. This includes measures that in 2020, one-tenth of all cars and trucks in EU
27 should be running on biofuels. This is considered to be one of the most ambitious
moves of an important industrialised region to fight global warming.
At the 2007 United Nations Climate Change Conference, dealing with the successor to
the Kyoto Protocol, the EU has proposed at 50% cut in greenhouse gases by 2050. The
EU's attempts to cut its carbon footprint appear to have also been aided by an expansion
of Europe's forests which, between 1990 and 2005, grew 10% in western Europe and
15% in Eastern Europe. During this period they soaked up 126 million metric tons of
carbon dioxide, equivalent to 11% of EU emissions from human activities.
22.3 Education and research
Educational policies and initiatives of the European Union and Framework Programmes
for Research and Technological Development
Renewable energy is one priority in transnational research activities such as the FP7.
Education and science are areas where the EU's role is limited to supporting national
governments. In education, the policy was mainly developed in the 1980s in programmes
supporting exchanges and mobility. The most visible of these has been the ERASMUS
programme, a university exchange programme which began in 1987. In its first 20 years
it has supported international exchange opportunities for well over 1.5 million university
and college students and has become a symbol of European student life.
There are now similar programmes for school pupils and teachers, for trainees in
vocational education and training, and for adult learners in the Lifelong Learning
Programme 2007–2013. These programmes are designed to encourage a wider
knowledge of other countries and to spread good practices in the education and training
fields across the EU. Through its support of the Bologna process the EU is supporting
comparable standards and compatible degrees across Europe.
16 EU countries are members of the European Space Agency. (Launch of an Ariane

rocket in Guiana)
Scientific development is facilitated through the EU's Framework Programmes, the first
of which started in 1984. The aims of EU policy in this area are to co-ordinate and
stimulate research. The independent European Research Council allocates EU funds to
European or national research projects. The Seventh Framework Programme (FP7) deals
in a number of areas, for example energy where it aims to develop a diverse mix of
renewable energy for the environment and to reduce dependence on imported fuels.

Since January 2000 the European Commission has set its sights on a more ambitious
objective, known as the European Research Area, and has extensively funded research in
a few key areas. This has the support of all member states, and extends the existing
financing structure of the frameworks. It aims to focus on co-ordination, sharing
knowledge, ensuring mobility of researchers around Europe, improving conditions for
researchers and encouraging links with business and industry as well as removing any
legal and administrative barriers.
The EU is involved with six other countries to develop ITER, a fusion reactor which will
be built in the EU at Cadarache. ITER builds on the previous project, Joint European
Torus, which is currently the largest nuclear fusion reactor in the world. The Commission
foresees this technology to be generating energy in the EU by 2050. It has observer status
within CERN, there are various agreements with ESA and there is collaboration with
ESO. These organisations are not under the framework of the EU, but membership
heavily overlaps between them.
Without a doubt, the creation of the euro will be the most important event
affecting the global trade and financial system since the Bretton Woods fixed exchange
rate mechanism collapsed in 1973. Its impact on the world economy will not only
depend on the euro’s ability to challenge the U.S. dollar as an global trade and
investment currency, but also on its effect on the stability of the international financial
markets. Thus, the potential role of the euro as a global trade (and investment) currency
will remain uncertain, at least until some of these issues will have been resolved,perhaps
by the middle of the first decade of the next century

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Euro as a Global Currency

S.P.B.Patel Engg. College (MBA Programme) 1

The ECB in Frankfurt, Germany, is in charge of the Eurozone's monetary policy

S.P.B.Patel Engg. College (MBA Programme) 2

The common (top) and national sides of the €2 coin

2.2 Payments clearing, electronic funds transfer

2.3 Currency sign

The euro sign; logotype and handwritten.

S.P.B.Patel Engg. College (MBA Programme) 3

3. Introduction of the euro

Currency Code Rate Fixed on Yielded

Austrian schilling ATS 13.7603 31 December 1998 2002

Belgian franc BEF 40.3399 31 December 1998 2002

Dutch guilder NLG 2.20371 31 December 1998 2002

Finnish markka FIM 5.94573 31 December 1998 2002

French franc FRF 6.55957 31 December 1998 2002

German mark DEM 1.95583 31 December 1998 2002

Irish pound IEP 0.787564 31 December 1998 2002

Italian lira ITL 1,936.27 31 December 1998 2002

Luxembourgian franc LUF 40.3399 31 December 1998 2002

Portuguese escudo PTE 200.482 31 December 1998 2002

Spanish peseta ESP 166.386 31 December 1998 2002

S.P.B.Patel Engg. College (MBA Programme) 4

Greek drachma GRD 340.750 19 June 2000 2002

Slovenian tolar SIT 239.640 11 July 2006 2007

Cypriot pound CYP 0.585274 10 July 2007 2008

Maltese lira MTL 0.429300 10 July 2007 2008

Slovak koruna SKK 30.1260 8 July 2008 2009

The currency was introduced in non-physical form (travellers' cheques, electronic

S.P.B.Patel Engg. College (MBA Programme) 5

participating countries (the Eurozone) ceased to exist independently. Their exchange

4. Direct and indirect usage

4.1 Direct usage

It is also gaining increasing international usage as a trading currency, in Cuba, North

4.2 Usage as reserve currency

S.P.B.Patel Engg. College (MBA Programme) 6

The euro remains underweight as a reserve currency in advanced economies while

4.3 Currencies pegged to the euro

S.P.B.Patel Engg. College (MBA Programme) 7

Main article: Optimum currency area

In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical

5.2 Transaction costs and risks

5.3 Price parity

S.P.B.Patel Engg. College (MBA Programme) 8

Another effect of the common European currency is that differences in prices – in

5.4 Macroeconomic stability

5.5 Evidence on the effect of the introduction of the euro

S.P.B.Patel Engg. College (MBA Programme) 9

5.5.4 Exchange rate risk

5.5.5 Financial integration

S.P.B.Patel Engg. College (MBA Programme) 10

5.5.6 Effect on interest rates

5.5.7 Price convergence

S.P.B.Patel Engg. College (MBA Programme) 11

6.1 Flexible exchange rates

6.2 Against other major currencies

• Current and historical exchange rates against 29 other currencies (European

S.P.B.Patel Engg. College (MBA Programme) 12

• Historical exchange rate from 1971 until now

Current EUR exchange rates

S.P.B.Patel Engg. College (MBA Programme) 13

9. Control and production

S.P.B.Patel Engg. College (MBA Programme) 14

S.P.B.Patel Engg. College (MBA Programme) 15