The Performance of the Euro
“Leading nations in Europe wanted to increase their economic ties to promote growth and piece. In 1951 Belgium, France, West Germany, Italy, Luxemburg and The Netherlands signed the Paris Treaty, creating the European Coal and Steel Community. In 1957, the same six countries signed the Treaties of Rome, creating the European Economic Community.” (Olmstead&Graves, 2003)
In 1979, the European Monetary System created a currency unit called the ecu to stabilize exchange rates and keep inflation in check. The Single European Act increased Political co-operation between the six EEC countries in 1986. In 1992, the ambitious Maastricht Treaty was signed setting a deadline of January 1999 for a shared currency. The treaty created the European Union following a single monetary and exchange rate policy with shared economic policies.
The Euro circulated in January 1999 as planned. The 11 member countries officially pegged their exchange rates to the euro. Companies began using the euro for internal reporting, invoicing and also for issuing bonds. Stocks began trading in euros and banks started offering euro credit-card accounts and provided euro balances for bank accounts. The currency went into common circulation on January 1, 2002.
In 1999, the ECB was a new bank with no decision-making history and that made it difficult to pass out the monetary policy strategy to the market and the public, and that was a real challenge for ECB. By now, the understanding of ECB’s monetary strategy has greatly improved. “The ECB today ranks as one of the most open, transparent and predictable central banks in the world, and they continually seek to improve their communication” (ECB, 2004)
During the fi ...