Corporate Structure & Leadership

ASSIGNMENT
ON

“Euro & Oil”

Submitted to:
Prof. P. K. Basu

Submitted by:
Khalid Khursheed Qurashi
09-MBA-27

Centre for Management Studies

Jamia Millia Islamia
 
 
Date: 25-02-’11
 “Euro”
EUROPEAN UNION

The European Union (EU) is a union of twenty-seven independent states based on the European
Communities and founded to enhance political, economic and social co-operation
Motto: United in diversity
History: 1950s - The first community is formed for trade- In 1951 the European Coal and Steel
Community (ECSC) was established. It had six members: Belgium, West Germany, Luxembourg,
France, Italy and the Netherlands. In 1957 the ECSC's six members decided to pool other areas of
their economies. They signed the Treaties of Rome, creating the European Atomic Energy
Community (EURATOM) and the European Economic Community (EEC). The members began to
remove trade barriers to form a 'common market'.
1960s - In 1967 the institutions of the three European Communities - ECSC, EURATOM and EEC
- were merged. A single European Commission, Council of Ministers and European Parliament
were created.
1970s - Denmark, Ireland and UK joined the EU. In 1979 the first direct elections to the European
Parliament were held.
1980s-The Single European Act set out the timetable for the creation of the Single Market by
1993. Greece joined the EU in 1981, with Spain and Portugal joining in 1986.
1990s- 'European Union' was introduced by the Maastricht Treaty in November 1993. The Treaty
established new areas of co-operation on defense, justice and home affairs. The Maastricht Treaty
was also important because it set out a timetable for economic and monetary union and the
introduction of a single currency. In 1995 Austria, Finland and Sweden joined the EU. In 1999 the
Treaty of Amsterdam extended the power of the European Parliament.
2000s-On 1 January 1999, the euro was introduced in 12 EU countries. The EU welcomed 10 new
countries in 2004: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Slovakia and Slovenia.
Objectives of the EU
The Union’s objectives can be read in the Lisbon Treaty Art. 3 TEU and include, among others:

 the promotion of peace and the well-being of the Union´s citizens

 an area of freedom, security and justice without internal frontiers
 sustainable development based on balanced economic growth and social justice
 a social market economy - highly competitive and aiming at full employment and social
progress
 a free single market

The Union shall also combat social exclusion and discrimination and promote social justice and
protection, equality between women and men, solidarity between generations and the protection of
children's rights.

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INTRODUCTION OF EURO

The euro (sign: €; code: EUR) is the official currency of the eurozone: 17 of the 27 member states
of the European Union (EU). It is also the currency used by the EU institutions. The eurozone
consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. The
currency is also used in a further 5 European countries (Montenegro, Andorra, Monaco, San
Marino and Vatican) with and without formal agreements. Additionally, 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 as well as the second most traded currency in the
world after 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. The name Euro was officially adopted on 16 December 1995.

2. The Euro was introduced to world financial markets as an accounting currency on 1

January 1999, Euro coins and banknotes entered circulation on 1 January 2002.

3. The Euro is managed and administered by the Frankfurt-based European Central Bank (ECB)
and the Euro system (composed of the central banks of the Euro zone countries)

4. The 1992 Maastricht Treaty obliges most EU Member States to adopt the Euro upon meeting
certain monetary and budgetary requirements.

5. The Euro was established by the provisions in the 1992 Maastricht Treaty.

6. The Euro is the official currency of the Euro zone: 17 of the 27 member states of the European
Union (EU).

7. It is also the currency used by the EU institutions.

8. The Euro zone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia
and Spain.

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9. The currency is also used in a further 5 European countries (Montenegro, Andorra, Monaco,
San Marino and Vatican).

10. The Euro is the second largest reserve currency as well as the second most traded currency in
the world after the U.S. dollar.

11. A reserve currency, or anchor currency, is a currency that is held in significant quantities by
many governments and institutions as part of their foreign exchange reserves.

Maastricht Criteria
The euro convergence criteria (also known as the Maastricht criteria) are the criteria for
European Union member states to enter the third stage of European Economic and Monetary
Union (EMU) and adopt the euro as their currency. The 4 main criteria are based on Article 121(1)
of the European Community Treaty. These criteria are-
1. Inflation rates: No more than 1.5 percentage points higher than the average of the three best
performing (with lowest positive inflation) member states of the EU.
2. Government finance:
Annual government deficit:
The ratio of the annual government deficit to gross domestic product (GDP) must not
exceed 3% at the end of the preceding fiscal year. If not, it is at least required to reach a
level close to 3%. Only exceptional and temporary excesses would be granted for
exceptional cases.
Government debt:
The ratio of gross government debt to GDP must not exceed 60% at the end of the
preceding fiscal year. Even if the target cannot be achieved due to the specific conditions,
the ratio must have sufficiently diminished and must be approaching the reference value at
a satisfactory pace.
3. Exchange rate: Applicant countries should have joined the exchange-rate mechanism (ERM II)
under the European Monetary System (EMS) for two consecutive years and should not have
devalued its currency during the period.
4. Long-term interest rates: The nominal long-term interest rate must not be more than 2
percentage points higher than in the three lowest inflation member states.
The purpose of setting the criteria is to maintain the price stability within the
Eurozone even with the inclusion of new member states.

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Countries in bold, italic and underlined are the one which is in Eurozone

MEMBERS Inflation(%) Interest(%) Debt-GDP(%) Deficit-GDP(%)

Austria 2.2 3.4 70.2 3.2
Belgium 3.4 3.9 102.5 4.8
Bulgaria 2.1 5.7 16.2 2.8
Cyprus 2.2 4.6 61.1 5.7
Czech republic 1.6 3.8 40.0 5.9
Denmark 2.2 3.0 46.6 4.6
Estonia 2.4 5.7 7.7 1.7
Finland 1.1 3.1 45.4 3.4
France 1.5 3.3 83.5 8.0
Germany 1.9 2.9 74.8 4.5
Greece 4.5 12.0 144.0 7.9
Hungary 4.5 7.9 78.9 4.2
Italy 1.4 4.6 118.1 5.1
Latvia -1.2 7.5 48.5 8.6
Lithunia 4.5 5.1 38.6 8.4
Luxembourg 2.1 3.3 16.2 3.8
Malta 1.7 4.4 72.6 3.8
Netherland 1.1 3.1 64.6 5.6
Poland 2.4 5.9 53.9 7.3
Portugal 1.1 6.5 83.2 7.3
Ireland -1.5 8.4 98.5 17.7
Romania 6.0 7.0 30.5 8.0
Slovakia 1.2 4.0 41.0 8.0
Slovenia 2.1 4.1 35.5 5.7
Spain 1.3 5.3 63.4 9.3
Sweden 1.4 3.2 42.6 2.1
UK 3.7 3.3 68.1 10.2

Countries in Euro-Zone fulfilling Maastricht criteria are-

1. Inflation

Three best performing countries in European union are Finland, Netherland, and Portugal.
Average of there inflation is 1.1

So, countries in eurozone coming in the range of criteria (1.1+1.5=2.6) are

Total countries= 15
a) Austria

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 b) Cyprus
c) Estonia
d) Finland
e) France
f) Germany
g) Italy
h) Luxembourg
i) Malta
j) Netherland
k) Portugal
l) Ireland
m) Slovakia
n) Slovenia
o) Spain

Countries in eurozone not fulfilling the criteria are Belgium and Greece

2. Long term interest rate

Countries with lowest interest rate are Finland ,Germany, Netherland and their average is 3.0
(2.9+3.1+3.1/3= 3.0)and range of inetrest for eurozone is 5(3+2).
So countries in eurozone fulfilling this criteria are
Total =12
a) Austria
b) Belgium
c) Cyprus
d) Finland
e) France
f) Germany
g) Italy
h) Luxembourg
i) Malta
j) Netherland
k) Slovakia
l) Slovenia

Countries in eurozone not fulfilling this criteria are Estonia, Greece, Portugal, Ireland and
spain
3.) Debt to GDP ratio
Countries in eurozone with Debt to GDP ratio less than 60% are
Total= 5
a) Estonia

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 b) Finland
c) Luxembourg
d) Slovakia
e) Slovenia

Countries in eurozone not fulfilling this criteria are-

Total= 12
a) Austria
b) Belgium
c) Cyprus
d) France
e) Germany
f) Italy
g) Malta
h) Netherland
i) Spain
j) Ireland
k) Portugal
l) Greece

4) Government deficit to GDP ratio

Estonia is the only Country in eurozone whose deficit to GDP ratio does not exceed 3%
Res t 16 countries in eurozone does not fulfill this criteria in 2010.

Graph showing Euro versus Dollar from Jan 1999-Jan 2011

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