The Euro

The Treaty of Maastricht

The decisive step towards a unified, fully integrated, lasting and effective community of member states was the Single European Act (SEA - come into force 1987), which was signed in Maastricht ("Treaty of Maastricht") after a year of negotiations at government level. The Treaty of Maastricht, which came into force on 1 November 1993, is a covering agreement that creates a "European Union" with new aims.

The Treaty envisages a European Union based on three "pillars":

Economic and Monetary Union

common foreign and security policy

co-operation in the spheres of justice and home affairs

What exactly does the Treaty of Maastricht aim at?

common security

the introduction of a single currency that is comparable with the national currencies of the best performing member states

turning the single European currency into one of the most stable currencies world-wide

set up strong and balanced economic and monetary decision-making power

a stage-by-stage movement towards to the economic and monetary union

The timetable:

EMU (European Monetary Union) is the consequence of the Single Market which came into effect in 1993 and is indispensable for the for the smooth functioning of the Single Market. The introduction of EMU is to take place in three phases:

Phase A:

listing the participating Member-States

setting up the ESCB (European System of Central Bank) and the ECB (European Central Bank)

Phase A/II:

Production of banknotes and coins

Adoption of complete legal framework

National steering structure

Banking financial community changeover plan

Phase B:

Fixing of conversion rates

Euro becomes a currency

ECB conducts single monetary and exchange rate policy in Euros

Whole sale payment system in Euros

Phase B/II:

continue of changeover

public an private operators start changeover when ever they like to

Phase C:

introduction of notes and coins

completion of changeover

only use of the Euro

withdraw of the old coins and notes

completion of the changeover of private and public operators

What are the main elements of EMS (European Monetary System) ?

The Exchange Rate Mechanism (ERM)

The European Currency Unit (ECU)

The ERM was devised to minimise currency fluctuations.

The ECU's functions are:

Denominator for the ERM

Basis a divergence indicator

Denominator for operations in the intervention and credit mechanisms

Reserve instrument and a means of settlement between monetary authorities in the Community

It will be a basket currency, when the EMU is completed.

The five convergence criteria established in the Treaty of Maastricht are:

Inflation
The inflation rates may not be more than 1,5 % above the average of the three best performing members over one year

Interest rates
Long-term interest rates mustn't be above 2 % of the three best performing members, in terms of price stability

National budget deficit shouldn't exceed 3 % of Gross Domestic Product

National debt shouldn't exceed 60 % of Gross Domestic Product

Exchange Rate
Currencies must have respected the normal fluctuations margins provided by the ERM for at least the last two years.

These criteria are important for the stability of the Euro. So that it may establish as a world currency. Now they are called Stability Pact.

The participating member states are:

France, Belgium, Netherlands, Germany, Luxembourg, Austria, Italy, Finland, Denmark, Spain, Ireland  and Portugal

The main opportunities that will occur through the Euro are:

End of Transaction costs

End of Currency crises and no more inswances currency fluctuations

Easy comparison of prices

Stabilisation of economic environment

Creation of a world currency

The Euro banknotes were designed by the Austrian Robert Kalina. One Euro will consist of 100 Cents. The following banknotes and coins will be issued:

Banknotes: 5, 10, 50, 100, 200 and 500 Euro

Coins: 1, 2, 5, 10, 20 and 50 Cents, 1 and 2 Euro

1 Euro are 13,7603 ATS.

The changeover from Schilling to Euro means that one system of measurement is replaced by an other, whereas the value of what is measured doesn't change.