005-Maulesh Buch-Evolution & Implementation of Euro Currency

7/29/2019 005-Maulesh Buch-Evolution & Implementation of Euro Currency

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A PROJECT REPORT ON

EVOLUTION & IMPLEMENTATION OF EURO CURRENCY

UNDER THE GUIDANCE OF

PROF. ANIL MAHAJAN

SUBMITTED BY

MAULESH BUCH

MMS FINANCE

ROLL NO: 05

K. J. Somaiya Institute of Management Studies & Research

Vidya Nagar, VidyaVihar (E), Mumbai 400077


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DECLARATION

The project report in the Area of Specialization Finance is submitted in March

2005 to K. J. Somaiya Institute of Management Studies & Research, Mumbai in

partial fulfillment of the requirement for the award of the degree of Master of

Management Studies (M.M.S) affiliated to the University of Mumbai.

Submitted to:

Prof. Anil Mahajan

Submitted By:

Name: Maulesh Buch

Roll No: 05


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CERTIFICATE

This is to certify that project entitled EVOLUTION & IMPLEMENTATION

OF EURO CURRENCY is submitted in March 2005 to K. J. Somaiya Institute

of Management Studies & Research by Maulesh Buch in partial fulfillment on the

requirements of the awards of the degree of Master of Management Studies

(M.M.S) affiliated to the University of Mumbai for the batch of 2003 05.

Prof. Anil Mahajan Prof. P. V. Narasimham

(Project Guide) (Director General)


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ACKNOWLEDGEMENT

This is to express my earnest gratitude and extreme joy at being bestowed with an

opportunity to get an opportunity to get an interesting and informative project. It is

impossible to thank all the people who have helped me in completion of project,

but I would avail this opportunity to express my profound gratitude and indebtness

to the following people for all the help they have given me.

I am extremely grateful to my project guide and co-coordinator Prof. Anil Mahajan

who has given an opportunity to work on such an interesting project. He proved to

be a constant source of inspiration to me and provided constructive comments on

how to make this project better. Credit also goes to my friends whose constant

encouragement let me in good stead. Lastly, I would thank Prof. P. V. Narasimham

and all my faculties for providing all explicit and implicit support to me during the

course of my project.

Name: Maulesh Buch

Roll no: 05.


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EXECUTIVE SUMMARY

On January 1, 2002, currency of Austria, Belgium, Finland, France,

Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain

replaced by a single currency Euro The introduction of Euro four decades after

the inception of the European Union is a significant step towards European

Political Unity.

Since 1950s, European Region was gradually moving towards economic

cooperation & integration. In1989, Delors report was presented, providing

direction by three-stage transition plan to be executed over more than a decade.

Plan outlined abolishment of capital movement restriction, establishing various

authorized institutions and the changeover.

Countries with diverse economic conditions had their own viewpoint and

Denmark, Sweden and United Kingdom opted out from joining Euro.

Maastricht Treaty laid down economic conditions to be satisfied for

participation. These convergence criteria is regarding budget deficit, rate of

inflation, interest rate and exchange rate stability.

In 1998, European System of Central Banks was formed to implement the

changeover. European Central Bank was established and irrevocable fixed

exchange rate was set for each national currency.

Euro coins and notes in different denomination came into circulation. It

was designed with an idea to represent unity along with respect for independent

nation. Security and convenience measure was also taken care of. Proper

information systems and logistics were put in place to bring awareness about euro

and implement the transition.


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During January 1999 to December 2001 euro was came into existence for

all non-cash transactions on no compulsion, no prohibition basis. Thereafter it

became the legal tender and old coins & notes were gradually withdrawn. The

currency changed, but because of the established conversion rate, the value

remained the same.


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TABLE OF CONTENTS

Chapter 1. Introduction 1

Chapter 2. The Evolution of Euro Currency 5

Chapter 3. European Countries & Euro 12

Chapter 4. Maastricht Treaty 19

Chapter 5. Setting the Value of the Euro 23

Chapter 6. Euro Coins & Notes 29

Chapter 7. Implementing the Changeover 36

APPENDIX I i

APPENDIX II ii

APPENDIX III iii

APPENDIX IV v

APPENDIX V viii

Bibliography & References ix


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Introduction

Chapter 1. Introduction

"The introduction of the euro is probably the most important integrating step since

the beginning of the unification process. It is certain that the times of individual

national efforts regarding employment policies, social and tax policies are

definitely over. This will require to finally bury some erroneous ideas of national

sovereignty... I am convinced our standing in the world regarding foreign trade

and international finance policies will sooner or later force a Common Foreign

and Security Policy worthy of its name... National sovereignty in foreign and

security policy will soon prove itself to be a product of the imagination."

German Chancellor Gerhard Schrder on 'New Foundations for European

Integration', The Hague, January 19, 1999.

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Introduction

In any economy, money performs four important functions as a medium

of exchange, measure of value of goods and services expressed as price, standard

of measure or unit of account and store of value. Money largely consists of

currency with public and demand deposits in bank. Hence, currency and its value

play very critical role in any countries economy and any change therein, especially

in the era of globalization, affects nations economic scenario significantly.

National currencies are vitally important to the way modern economies

operate. They allow us to consistently express the value of an item across borders

of countries, oceans, and cultures. Wealth can be easily stored or transported as

currency.

On January 1, 2002, world economy and history of currencies have seen

beginning of new era as twelve of the countries in the European Union replaced

their respective currency. Austrian shilling, Belgian franc, Dutch guilder, Finnish

Markkaa, French franc, German mark, Greek drachma, Irish pound, Italian lira,

Luxembourg franc, Portuguese escudo and Spanish peseta was replaced by a single

currency Euro and issued their new euro banknotes and coins. This was

mammoth transition as the economic and monetary policies were different in

different countries. The implementation of the euro was a remarkable success of

Europe's biggest project, the economic and monetary union.

The original seed was planted in 1946 when Winston Churchill suggested

the creation of the "United States of Europe." The primary goal was to create

political harmony in the region through economic cooperation.

Then, in 1952, Churchill's suggestion took shape and the European Coal

and Steel Community (ECSC) was created. The goal, just as Churchill had

intended, was to help prevent military conflict between France and Germany. In

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Introduction

1957, the Treaty of Rome was signed, declaring the goal of creating a common

European market.

Thereafter European region was constantly moving in the direction of

economic cooperation and integration by forming various institutions. After many

false starts, the process of creating the Euro got its real start in 1989, when Jacques

Delors, president of the European Commission, published the Delors Report. This

important report outlined a transition plan that would create a single European

currency.

European Union (EU), which began as the ECSC with just six countries

Germany, France, Italy, Netherlands, Belgium and Luxemburg, has now

membership of 25 countries and has population 455 million with around 28% share

of the world GDP and 20% share of global trade.

Though the US dollar is still favored as a reserve currency, within three

years of the launching of Euro, around 17% of the reserves of world banks were in

euro. The share of euro in commercial paper outstanding is steadily increasing and

the euro has also been used as international bonds and notes market.

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Introduction

Participating Countries

There are currently 12 member states of the European Union utilizing the euro:

Belgium

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

The Netherlands

Austria

Portugal

Finland

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The Evolution of Euro Currency

Chapter 2. The Evolution of Euro Currency

"One basic formula for understanding the Community is this: 'Take five broken

empires, add the sixth one later, and make one big neo-colonial empire out of it

all.'"

Professor Johan Galtung, Norwegian sociologist, "The European Community, a

Superpower in the Making", 1973

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A Brief History

As mentioned in the previous chapter Winston Churchill envisioned the

creation of the "United States of Europe". His goals were primarily political, in that

he hoped a unified government would bring about peace for a continent that had

been torn apart by two world wars.

Then six west-European countries took Churchill's suggestion and created

the European Coal and Steel Community (ECSC). These resources were quite

strategic to the power of each country, so a requirement of the ECSC was that eachcountry allows their resources to be controlled by an independent authority.

Thereafter, the Treaty of Rome was signed, declaring the goal of creating a

common European market. France, Germany, Italy, Belgium, the Netherlands, and

Luxembourg signed it. Refer Appendix I for details about a country joining

European Union.

The Treaty of Rome was ratified in 1958, establishing the European

Economic Community (EEC). The goal of the EEC was to reduce trade barriers,

streamline economic policies, coordinate transportation and agriculture policies,

remove measures restricting free competition, and promote the mobility of labor

and capital among member nations. It was very successful, but just as with the

ECSC, it served more of a peacemaking role between the European nations than an

economic role.

At this time, the monetary exchange rate between countries was controlled

by the Bretton Woods system, which connected currencies to the U.S. dollar,

allowing for only a one percent fluctuation around designated values. This was

referred to as the "pegged rate" and was based partly on the gold backing of the

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dollar. This system worked well for 20 years, helping to stabilize exchange rates

and restore economic growth in the postwar period. During 1960s, the system

began to fail as US balance of payment deficits started mounting, and exchange-

rate agreements became the prevalent topic among European political and

economic leaders.

By December 1969, Luxembourg's Prime Minister, Pierre Werner, was

asked to write an EC (European Community) report covering the need for a

complete monetary union among the European economies. The Werner Report

came out in 1970 and specifically brought up the idea of a single European

currency as part of a cooperative monetary effort. The report was the first to use

the term Economic and Monetary Union.

Although this plan seemed promising, it lost momentum when President

Nixon's 1971 policy of "benign neglect" ended U.S. backing (by its gold reserves)

of the predefined exchange rates against the dollar, collapsing the Bretton Woods

system. The dollar-gold link was abandoned in August 1971. After an abortive

attempt to salvage the system by means of series of parity realignment, dollar

devaluations and widening the bands of permissible variation around the central

parities, the system was finally laid to rest, officially in 1978. Other foreign central

banks were not willing to support the dollar. The era of floating exchange rates had

begun.

In 1979, European Monetary System (EMS) was set up. EMS was an

arrangement by which most nations of the European Union (EU) linked their

currencies to prevent large fluctuations relative to one another. It was organized to

stabilize foreign exchange and counter inflation among members. Periodic

adjustments raised the values of strong currencies and lowered those of weaker

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ones, but after 1986, changes in national interest rates were used to keep the

currencies within a narrow range. In the early 1990s, the European Monetary

System was strained by the differing economic policies and conditions of its

members, especially the newly reunified Germany, and Britain permanently

withdrew from the system. The main components of the EMS were the European

Currency Unit (ECU), the exchange rate and intervention mechanism (ERM) and

various credit mechanisms.

The next move toward a unified European economy came with the 1987

Single European Act. This act called for the systematic removal of barriers and

restrictions that hampered trade between European countries. As a result, border

checks, tariffs, customs, labor restrictions and other barriers to free trade were

dismantled. Refer Path to Euro in Appendix III.

Transition Plan

In 1989, Jacques Delors, president of the European Commission, published

the Delors Report, outlining the three-stage transition plan.

Stage one began on July 1, 1990, and immediately abolished (at least in

principle) all restrictions on the movement of capital between the member states. It

also began the identification of issues that needed to be dealt with and the

development of a working program to implement the upcoming changes.

Stage two began on January 1, 1994, and marked the establishment of the

European Monetary Institute (EMI). The EMI was responsible for coordinating the

monetary policy and strengthening the cooperation of the central banks, as well as

preparing for the establishment of the European System of Central Banks, which

included the single monetary policy and single currency. European Monetary

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Institute went into liquidation following the establishment of the ECB on 1 June

1998.

In December 1995, the European Heads of State or Government at the

European Council meeting in Madrid voted on the name "euro" for the single

currency of the European Monetary Union.

The European Monetary Institute was created as transitional step in

establishing the European Central Bank (ECB) and a common currency. The ECB,

which was established in 1998, is responsible for setting a single monetary policy

and interest rate for the adopting nations, in conjunction with their national central

banks. Accordingly, in 1998, Austria, Belgium, Finland, France, Germany, Ireland,

Italy, Luxembourg, the Netherlands, Portugal, and Spain cut their interest rates to a

nearly uniformly low level in an effort to promote growth and to prepare the way

for a unified currency.

Stage three began on January 1, 1999, with the establishment of

"irrevocably fixed exchange rates" of the currencies of the current 11 member

states. The euro was legally a scriptural currency in the 11 Member States of the

euro area during the period from its launch on 1 January 1999 until the

introduction of notes and coins on 1 January 2002.During this period, the eurowas the official currency of those countries, but could only be used in non-cash

transactions such as electronic transfers, credit, etc. At the beginning of 1999, the

above mentioned 11 EU members adopted a single currency, the euro, for foreign

exchange and electronic payments. (Greece, which did not meet the economic

conditions required until 2000, subsequently also adopted the euro.) The

introduction of the euro four decades after the beginnings of the European Union

was widely regarded as a major step toward European political unity. By creating a

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common economic policy, the nations acted to put a damper on excessive public

spending, reduce debt, and make a strong attempt at taming inflation.

The Euro

While the euro was introduced on 1 January 1999, its name was decided at

the European Council in Madrid in December 1995. Banknotes and coins in euro

were launched on 1 January 2002. Since 28 February 2002, euro notes and coins

have been the only legal tender in the euro area. One euro is divided into one

hundred cent. The currency code EUR has been registered with the InternationalOrganisation for Standardisation (ISO 4217) and is used for business, financial and

commercial purposes.

The graphic symbol ()

The European Commission (EC) was given the task of creating the euro

symbol as part of its communications work. The design of symbol had to

accomplish three things:

It had to be easily recognized.

It had to be easily written by hand.

It had to be pleasing to look at.

The EC had more than 30 designs drawn up. They selected 10 from those and let

the public vote, which narrowed those 10 down to two. From there they made their

final selection. The design that was selected is based on the Greek letter epsilon,

and it resembles the "E" as the first letter of the word "Europe." The two parallel

lines through the center of the "C" represent stability. It is registered with the

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International Organisation for Standardisation (ISO 10036) for business, financial

and commercial purposes.

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European Countries & Euro

Chapter 3. European Countries & Euro

"We already have a federation. The 11, soon to be 12, member States adopting the

euro have already given up part of their sovereignty, monetary sovereignty, and

formed a monetary union, and that is the first step towards a federation."

German Foreign Minister Joschka Fischer, Financial Times, July 7, 2000.

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Participating Countries (Eurozone)

The Eurozone or euroarea encompasses those member states of the

European Union in which the euro has been adopted as the single currency in

accordance with the Treaty and in which a single monetary policy is conducted

under the responsibility of the decision-making bodies of the ECB (European

Central Bank). The euro area currently comprises Austria, Belgium, Finland,

France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal

and Spain. Refer Appendix II for the countries participated in European MonetaryUnion. Following are the details of those countries and their citizens viewpoint

about Euro.

Austria: Austria is a small European country in terms of gross domestic product,

area, and population. Yet, since the end of World War II, it has achieved a

remarkable record of growth by concentrating on manufacturing the products of

the second industrial revolution--such as high-quality machine tools, chemicals,

and other producer goods--and exporting them largely to the countries of Western

Europe. AlthoughAustria has achieved considerable autonomy in many importanteconomic areas, it remains fully engaged in the European and global economic

environment.Austria joined European Union in 1994. Austria had voted by a two-

thirds majority to join the European Union. However, populist support for both the

EU and the single currency, has fluctuated. After initial resistance to euro many of

Austrians (66%) supported joining the euro and replaced its currency Austrian

Schilling (ATS) at 1EUR= 13.7603 ATS.

Belgium: Belgium became a founding member of the European Economic

Community in 1957, and Brussels is home to many key European institutions,

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including the European Commission and the European Parliament. As one of the

EU's founding members and the self-styled "capital of Europe", there is great

support for EMU in Belgium. Belgians are used to the idea of monetary union,

having shared a currency with Luxembourg since 1920. The euro's popularity is

undisputed, with 70 per cent in favour of EMU, according to a survey in 1999.

Belgium Franc (BEF) was replaced at 1 EUR = 40.3399 BEF.

Finland: One of the euro's most ardent supporters, Finland shrugged aside the

reluctance of its Nordic neighbours Denmark and Sweden and signed up for the

euro in 1998, three years after it joined the EU. Finland's economy has performed

well since the country joined the EU. It has received financial help for its poorer,

sparsely-populated regions in the north and east of the country. Finland Markka

(FIM) was replaced at 1 EUR = 5.94573 FIM.

France: In the years following the Second World War, France was at the heart of

the intellectual push for a unified Europe, thanks to people such as Jean Monnetand Robert Schumann, who are considered the architects of the European project.

In the 1980s, under President Francois Mitterrand, France further strengthened its

place at the forefront of the European Union. However, France's contribution to the

creation of the euro has not been without hiccups. The French only joined

European Monetary Union after a hard-fought referendum campaign in 1992, in

which just 51 per cent voted in favour of the single currency project. In the end

franc was replaced at 1 EUR = 6.55957 FRF.

Germany: The German government backs a profound shift in political power

within the EU, with general support for some form of European federation. It also

backs eastward enlargement. However, there is much wariness about the loss of the

solid, strong Deutsche Mark in favour of the euro. For most Germans, the fear of

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inflation - and the corresponding love for the stable D-mark they have enjoyed for

years - remains deep-seated. The country has gone through several currency

reforms and a period of hyperinflation within living memory, and many would

rather stick with the reliable D-mark, which for them symbolises the country's

post-war success. Deutsche Mark was replaced at 1 EUR = 1.95583 DEM.

Greece: The poorest member of the EU, Greece sees EMU as an essential step

towards achieving its strategic and economic ambitions. In spite of the euro's

weakness when Greece entered the euro-zone on January 1 2001, opinion polls

showed that some 70 per cent of Greeks were in favour of membership. There is

little attachment to the drachma. Europe's second-oldest currency is linked in

Greek minds with economic and political backwardness. Greece is leveraging the

euro to encourage foreign direct investment with a view to the country becoming a

business and transport hub, linking south-east Europe with EU markets. Greece

Drachma (GRD) was replaced at 1 EUR = 340.750 GRD.Ireland: During the 1990s, a rapid increase in foreign direct investment and

generous amounts of EU regional aid helped transform Ireland into the EU's fastest

growing economy. The Irish have traditionally been one of the most pro-European

nations, unsurprising considering the large amounts of financial assistance they

have received from Brussels. Exchange rate for euro was 1 EUR = 0.787564

Ireland Pound (IEP).

Italy: Italy has attracted a great deal of criticism from its European partners over

its public spending and its large debt. On entering the eurozone the Italian

economy was the most stretched of all countries by the EU's convergence criteria

for membership. By pushing through several reforms, most notably overhauling

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public finances, the then centre-left government was able to join the euro. Italian

Lira was replaced at 1936.27 per euro.

Luxembourg: The smallest member of the EU was one of the EEC's six

founding nations in 1957. Luxembourg has provided two of the European

Commission's nine presidents, Gaston Thorn and Jacques Santer. The Grand

Duchy is also known for its pro-European loyalty and a former Luxembourg prime

minister, Pierre Werner, was one of the intellectual fathers of European monetary

union. The country's government has been a major player in ensuring the swift

introduction of the euro. Interestingly, in order to join the euro, Luxembourg had to

set up its own central bank. The euro is a project well suited to Luxembourg's

traditions as it has been part of a monetary union with Belgium since the 1920s.

Luxembourg Franc was replaced at 40.3399 per Euro.

Netherlands: The Netherlands is one of the EU's smaller members, with a

population of 15m, but also one of its most enthusiastic. From the outset it hasembraced the euro, and planed a quicker changeover to the currency than any other

country, withdrawing the guilder four weeks into 2002. The country which hosted

the negotiations for the Maastricht and Amsterdam treaties, has benefited from a

weak euro. Netherland Guilder was replaced at 2.20371 per euro.

Portugal: Entry to the euro in brought about a brief upturn for Portugal in 1998

as falling interest rates and currency stability triggered economic regeneration in

one of Western Europe's poorest countries. However, initial euphoria gave way to

growing gloom as Portugal's economic growth slowed and inflationary pressure

persisted, triggering stern warnings from Brussels over excessive public spending.

Portuguese Escudo was replaced at 200.482 per euro.

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Spain: Spain has moved mountains economically to ensure membership of the

euro. Between 1997 and 2000 annual real output growth averaged more than 4 per

cent creating 2m new jobs that have brought the unemployment rate down from

21.5 per cent to 13.6 per cent. Once considered an economic backwater, Spain has

seen an unprecedented rise in its phone and internet sectors. Exchange rate was 1

EUR = 166.386 Peseta.

Non-participating EU countries

Denmark, Sweden, and United Kingdom met the criteria of Maastricht

Treaty but opted out to participate in Euro. The National Central Banks (NCBs) of

Denmark, Sweden and the United Kingdom, have a special status that allows them

to conduct their own national monetary policies, but not to take part in deciding

and implementing monetary policy for the euro area.

Denmark: Denmark obtained an opt-out of joining the euro after voters initially

rejected the Maastricht Treaty in a referendum in June 1992. A referendum held in

September 2000 to determine whether to join the single currency was rejected by

53 to 47 percent. The Danish government announced in January 2002 that a second

referendum on the issue will be held, although no date has yet been set. Denmark is

a member of the Exchange Rate Mechanism II (ERM II), which means that the

Danish krone is linked to the euro, although the exchange rate is not fixed and is

pegged within a 2.25% band against the euro.

Sweden: Sweden joined the EU in 1995 with an opt-out on adopting the euro. In

Sptember 2003 a referendum was held in Sweden on whether to adopt the Euro as

theie currency and 56% rejected the proposal to join the euro currency.

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United Kingdom: UK negotiated an opt-out of joining the euro in the

Maastricht Treaty. The current Labour government is committed to holding a

referendum when it determines that the economic conditions for joining are right.

In June 2003, Government has stated that it remains committed to promoting

eventual membership of the euro to the British people.

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Maastricht Treaty

Chapter 4. Maastricht Treaty

"The euro was not just a bankers' decision or a technical decision. It was a

decision which completely changed the nature of the nation states. The pillars of

the nation state are the sword and the currency, and we changed that. The euro

decision changed the concept of the nation state and we have to go beyond that."

EU Commission President Romano Prodi, Financial Times interview, April 9,

1999.

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Maastricht Treaty

Maastricht Treaty on European Union signed on 7 February 1992

(following political agreement at the Maastricht European Council in December

1991) and came into force in November 1993. It established the conditions and the

timetable for the introduction of the single European currency. To participate,

countries must meet the requirements that were set up in the Maastricht Treaty,

drafted in 1991.

Economic Requirements for Participation

In addition to the membership requirements of the EU, countries who wished to

participate in the euro and be a part of "Euroland" had to pass some economic tests

referred to as convergence criteria:

Public Finances: The country's annual government budget deficit

cannot exceed 3 percent of gross domestic product (GDP). This addresses

the concern of excessive budget deficit. In addition, the total outstanding

government debt (the cumulative total of each year's budget deficit) cannot

exceed 60 percent of GDP.

Price Stability: In order to encourage more stable prices and to push

down inflation rates, the country's rate of inflation must be within 1.5

percent of the three best performing EU countries. That is, inflation rate

should not exceed by more than 1.5 percentage points that of three best

performing countries.

Long Term Interest Rates: The average nominal long-term interest

rate must be within 2 percent of the average rate in the three countries with

the lowest inflation rates. (Interest rates are measured based on long-term

government bonds and/or comparable securities.) That is, long-term interest

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Maastricht Treaty

rate should not exceed by more than 2 percentage points that of the three

best performing countries in terms of price stability.

Exchange Rate Stability: The country's exchange rates must stay

within "normal" fluctuation margins of the European Exchange Rate

Mechanism (ERM) without severe tensions or devaluation for at least two

years.

The Treaty moreover requires an examination of the compatibility of the

countrys national legislation, including the statutes of its national central bank,

with the relevant provisions of the Treaty.

After much debate over how strictly these requirements must be upheld, it was

finally determined that participating countries must show that they are at least "on

course" to meet the requirements.

Meeting the initial requirements, however, is not a one-time thing. The

Stability and Growth Pact, which was drafted in 1996, established an agreementstating that fines would be charged to countries that have excessive deficits.

Member states cannot run a budget deficit that is greater than 3.0 percent of the

GDP. If they do, they will be charged 0.2 percent of their GDP, plus 0.1 percent of

the GDP for every percentage point of deficit above 3.0 percent. The Pact does not

automatically impose these fines, however. Countries that are in recession, which

is defined as a fall by at least 2.0 percent for four fiscal quarters, may automatically

be exempt. A fall by any amount from 0.75 to 2.0 percent requires a vote by the

EU to impose the fine.

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Maastricht Treaty

Stability and Growth Pact

It consists of secondary EU legislation combined with a political commitment in

the form of a European Council Resolution adopted at the Amsterdam summit on

17 June 1997. The Pact is intended as a means of safeguarding sound government

finances in order to strengthen the conditions for price stability and for strong

sustainable growth conducive to employment creation. More specifically,

budgetary positions close to balance or in surplus are required as the medium-term

objective for Member States, which would allow them to deal with normal cyclical

fluctuations while keeping their government deficit below 3% of GDP.

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Setting the Value of the Euro

Chapter 5. Setting the Value of the Euro

"The euro is far more than a medium of exchange... It is part of the identity of a

people. It reflects what they have in common now and in the future."

European Central Bank Governor Wim Duisenberg, December 31, 1998.

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European Currency Unit (ECU)

The ECU was the official accounting unit of the European Union until the

end of 1998, and was notably used for the establishment of the EU budget, as the

numeraire of the ERM and as a reserve asset for central banks. It was a basket

currency made up of the sum of fixed amounts of the 12 national currencies of the

Member States of the European Union at the time of the signature of the

Maastricht Treaty in February 1992. With the introduction of the euro on 1 January

1999, the ECU ceased to exist, while the initial value of the euro (for exampleagainst other currencies, such as the dollar) was defined as being equal to the value

of the ECU on 31 December 1998. The final composition of the ECU was frozen

on 8 November 1993 following the entry into force of the Treaty of Maastricht,

and consisted of the following monetary amounts fixed on 20 September 1989,

based on weightings established by the Ecofin Council on 19 June 1989:

Currency ISO Code Weighting in % Fixed amount

Belgian franc BEF 7.6 3.301

Danish kroner DKK 2.45 0.1976

German mark DEM 30.1 0.6242

Greek drachma GRD 0.8 1.440

Spanish peseta ESP 5.3 6.885

French franc FRF 19.0 1.332

Irish pound IEP 1.1 0.008552

Italian lira ITL 10.15 151.8

Luxembourg franc LUF 0.3 0.130

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Dutch guilder NLG 9.4 0.2198

Portuguese escudo PTE 0.8 1.393

British pound GBP 13.0 0.08784

Exchange Rate Mechanism (ERM)

Exchange rate and intervention mechanism of the European Monetary

System defined the exchange rates of the currencies participating in terms of

central rates against the European Currency Unit. These central rates were used to

establish a table of bilateral central rates between participating currencies.

Exchange rates were allowed to fluctuate within a band around the bilateral central

rates; with the normal fluctuation margins corresponding to +/- 2.25% (however,

margins were temporarily widened). The central rates could be adjusted, subject to

mutual agreement between all countries participating in the ERM. ERM ceased to

exist on 1 January 1999, when the euro was introduced, and was replaced by

ERM-II.

Exchange Rate Mechanism II (ERM II)

Successor to the Exchange Rate Mechanism of the European Monetary System,

ERM II came into existence on 1 January 1999. The principles of the system were

agreed at the Amsterdam European Council in June 1997. And notably provide for

bilateral links between the euro and each participating currency. The standard

fluctuation band amounts to 15% around the central rate, while narrower bands

may be agreed on a case-by-case basis. Membership of the mechanism is

voluntary, although Member States with derogation are expected to join it.

Denmark and Greece participated from 1 January 1999, with the kroner subject to

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a narrow band of 2.25%. Since Greece joined the euro, Denmark has been the

only member until 28 June 2004, when Estonia, Lithuania and Slovenia joined

ERM II with a fluctuation band of 15%.

Eurosystem

The Eurosystem comprises the European Central Bank (ECB) and the

national central banks of the Member States, which have adopted the euro in

accordance with the Treaty. There are currently 12 national central banks in the

Eurosystem. The Eurosystem is governed by the Governing Council and the

Executive Board of the ECB and has assumed the task of conducting the single

monetary policy for the euro area since 1 January 1999. Its primary objective is to

maintain price stability.

It meets its objectives through:

Deciding and implementing monetary policy;

Conducting foreign exchange operations; and

Operating payment systems.

European System of Central Banks (ESCB)

The European System of Central Banks (ESCB) comprises the ECB and

the national central banks of all 15 Member States of the European Union. It

includes, in addition to the members of the Eurosystem, the national central banks

of the Member States, which have not adopted the euro. The National Central

Banks of Member States not participating in the euro area, i.e. Denmark, Sweden

and the United Kingdom, have a special status that allows them to conduct their

own national monetary policies, but not to take part in deciding and implementing

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monetary policy for the euro area. The Governing Council, the Executive Board

and the General Council of the ECB govern the ESCB.

European Central Bank (ECB)

The European Central Bank was established on 1 June 1998 and lies at the

centre of the Eurosystem and the European System of Central Banks (ESCB). It

ensures that the tasks conferred upon the Eurosystem and the ESCB are

implemented either by its own activities pursuant to the Statute of the ESCB or

through the national central banks. The ECB is situated in Frankfurt, Germany.Decision-making bodies of the ECB comprises of Governing Council, the

Executive Board and the General Council. The Governing Council comprises all

the members of the Executive Board and the governors of the national central

banks of the Member States, which have adopted the euro. The Executive Board

comprises the President and the Vice-President of the ECB and four other

members appointed by the Heads of State or Government of the Member States,

which have adopted the euro. The General Council comprises the President and the

Vice-President of the ECB and the governors of all the national central banks of

the Member States of the European Union. The ECB implements the monetary

policy for the Eurozone by setting interest rates, conducting foreign exchange

operations, holding reserve and authorising the issue of euro bank notes.

The job of European Central Bank (ECB) was to make sure that the European

System of Central Banks (ESCB) implemented the changeover required by the

euro statutes and generally carries out its duties. The General Council of the ECB

was responsible for setting the conversion rate for the euro for each participating

country. Those rates were established in January 1999, and are "irrevocably fixed."

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The conversion was based on the existing currency so that the euro is simply an

expression of the previous national currency. These rates were determined on 31

December 1998 for 11 national currencies (31 December 2000 for the Greek

drachma) by dividing the market value of the euro by the market values of the

individual participating currencies.

The ECB used guidelines established in a Joint Communiqu that was issued

on May 2, 1998, by the ministers of the member states who were adopting the

euro. In order not to modify the external value of the European Currency Unit

(ECU), they used the bilateral rates of the Exchange Rate Mechanism (ERM) to

establish the fixed conversion rate for each national currency. The calculation of

the exchange rates followed the regular daily concertation procedure, which used

the representative exchange rate for each nation's currency against the U.S. dollar

as of December 31, 1998. Refer Appendix V for irrevocable exchange rate of

various countries.

The National Central Banks of the participating Member States played a key

role in the smooth transition to the euro. Their responsibilities have included:

Introducing the euro in their respective countries;

Managing the changeover from national currencies to the euro;

Creating the necessary systems to effectively circulate the euro banknotes

and coins;

Withdrawing national currencies; and

Providing advice about and promoting the use of the euro.

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Euro Coins & Notes

Chapter 6. Euro Coins & Notes

"We must now face the difficult task of moving towards a single economy, a single

political entity .. For the first time since the fall of the Roman Empire we have the

opportunity to unite Europe."

EU Commission President Romano Prodi, European Parliament, October 13, 1999.

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Euro Coins & Notes

Euro circulation coins (normal and commemorative)

There are currently eight denominations of euro coins in circulation: the 1,

2, 5, 10, 20 and 50 cents and the 1 and 2. One euro is equal to 100 cents. The

denominations and technical specifications of the coins are harmonised and they

have legal tender status throughout the euro area since 1 January 2002. However,

each Member State issues coins with its own national design on one side of each

denomination, whilst the other side features a common European motif. In addition

to the euroarea member states, Monaco, San Marino and the Vatican City are also

entitled to issue limited quantities of euro circulation coins through agreements

with the Community. A quality management system has been put in place to

ensure that the euro coins remains interchangeable throughout the euro area. They

conform to the common standards necessary for use in all vending machines.

All eight different denomination coins vary in size and thickness according

to their values to promote easier identification and even to facilitate recognition by

the blind and the partially sighted. There was a Europe-wide competition for the

coin design and Luc Luycx of the Royal Belgium Mint had the winning designs for

the side of the coins that is common to all 12 member states.

The design features one of three maps of Europe surrounded by the 12 stars

representing the Euro member states. The opposite side of the coins has designs

specific to each country, also surrounded by the 12 stars. Although each country

has its own coin design, each coin is accepted in any member state.

The 1 and 2 coins are bicolour/bimetallic coins. The bicolour or

bimetallic coins are the one with a core inserted in a ring, the core and the ring

being of different colours and different metals or alloys. This is for security reason

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Euro Coins & Notes

as it becomes harder to counterfeit such bimetallic and bicolor coin than regular

coins.

Euro collector coins

Euro collector coins are not intended for circulation. Therefore, it differs

from regular euro coins. According to the conclusions of the Ecofin Council

meeting in January 2000, to ensure that Euro collector coins will be readily

distinguishable from Euro coins intended for circulation, the coins must bide to the

following rules:

The face value of collector coins should be different from that of the coins

intended for circulation (i.e. Euro coins cannot have a face value equal to

the 8 denominations: 1, 2, 5, 10, 20, 50 Euro cent and 1 and 2 Euro)

Collector coins should not use images, which are similar to the common

sides of the euro coins intended for circulation. Furthermore, as far as

possible, the designs used should also be at least slightly different from

those of the national sides of circulation coins

Out of colour, diameter and thickness, euro collector coins should differ

significantly from the coins intended for circulation in two respects

Collector coins should not have a shaped edge with fine scallops, or

"Spanish flower"

The identity of the issuing Member State should be clearly and easily

recognizable.

Euro collector coins may be sold at or above face value and the approval for

the volume of collector coins issue should be sought on an aggregate basis rather

than for each individual issue. With respect to collector coins' denominations that

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Euro Coins & Notes

may coincide with the low denominations of euro banknotes there does not seem to

exist any significant risk of substitution. However, Member States are expected to

stand ready to consider any demands by the ECB on this matter. While Euro

collector coins will have legal tender status in the issuing Member State, the

competent authorities (NCBs, Mints or other institutions) should set up temporary

arrangements through which owners of euro collector coins issued in other euro

area Member States can receive the face value of those coins while bearing the

costs related to this transaction. That is, the legal tender status of these coins is

limited to the country of issue.

Euro commemorative coins

These are commemorative variations of euro circulation coins, in the sense

that they have a different national side from the standard one, and commemorate a

specific event or personality. They comply with the denominations and with the

technical specifications of euro circulation coins and has legal tender status

throughout the euro area. As these coins must bear one of the common sides, the

commemorative feature must appear on the national side so that the common side

remains unaffected. The volume of coins and/or the production period of this coin

variation are limited. It has been agreed between Member States and the

commission that all commemorative coin issues would be limited to a single coin

denomination (2).

Euro Bank Notes

There are seven euro bank notes in denomination (5, 10, 20, 50, 100,

200 and 500). Banknotes denominated in euro, circulating in the euro area since

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Euro Coins & Notes

1 January 2002. The seven designs are common to all euro area members, where

they are the only notes with legal tender.

As with the euro coin, notes design was also the result of a contest.

Designers were nominated by the national central banks, and the competitors

turned out designs for the seven bank notes based on either the theme of "Ages and

Styles of Europe" or an abstract modern theme. Robert Kalina of the

Oesterreichische Nationalbank won the competition. His designs were selected at

the Dublin European Council in December of 1996. He based his designs on the

theme of seven important architectural periods in Europe's cultural history. The

resulting banknotes are attractive, have a number of security features and are

representative of all the Member States involved.

On the front of the banknotes, windows and gateways symbolise the spirit

of openness and co-operation in Europe. The 12 stars of the European Union

appear on each banknote. On the reverse, a bridge from the same architectural

period is featured, symbolising the close co-operation and communication within

Europe, and between Europe and the world.

The seven bank notes are printed in different sizes and shapes for easier

identification. The size of the banknotes varies, increasing with the value. The 5

banknote is the smallest and the 500 the largest. Similar to euro coin, different

sizes and the bold, contrasting colours with "touch and feel" characteristics will

help the blind and the partially sighted to identify the banknotes. These are just two

of the four features incorporated into the banknotes after consultation with the

European Blind Union. The other two features are: the printing of the values in

large, bold figures, and the use of the intaglio printing process for some elements

of the banknotes. Intaglio printing leaves the print raised in relief. Such tactile

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Euro Coins & Notes

marks are also printed along the edges of the higher-value 200 and 500

banknotes.

The other main features of every euro banknote are:

The name of the currency written in both the Latin (EURO) and the Greek

(EYP) alphabets

The initials of the European Central Bank in the five linguistic variants -

BCE, ECB, EZB, EKT, EKP - covering the 11 official languages of the

European Community

The symbol indicating copyright protection

The signature of President of the European Central Bank

The flag of the European Union

Around 14.89 billion euro banknotes and 51.629 billion euro coins was

produced throughout the euro area prior to 1 January 2002. Around ten billion

banknotes were put into circulation immediately, replacing national banknotes,while the rest were held in reserve to replenish stocks.

What happened to Old Currency Coins?

Coins recycled

The old currency coins were send to the countries like China where tey are

worth their nickel. China requires that kind of material as raw materials to feed its

rapidly growing economy, and it is snapping up the obsolete coins and melting

them down for their metal content. The Asian giant, with booming construction

and automobile sectors, is scouring the globe for every piece of scrap metal it can

lay its hands on - and France is one country that has a ready supply of much-

sought-after nickel-containing coins. China's stainless steel demand was increasing

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Euro Coins & Notes

and nickel is a key component of the medal as an anti-corrosive additive. It is also

very versatile and also finds its way into cars, appliances and kitchenware.

Coins devoured

Reuters China had been a major buyer of French coins since they were

replaced by euros as the country's legal tender almost two years ago. Coins were

not auctioned directly. Instead, it was sold to dealers, and some of whom in turn is

selling it to smelters and scrap metal traders. The old 50-centime coin, almost 100

percent nickel, is proving particularly popular in China, where it is bought as scrap

to supplement tight supplies of the main raw material, refined nickel. The

shipments are usually packed 500 to 1,000 tonnes per lot and the stainless steel

producers can just put the coins into their furnaces as nickel feed.

Even collectors' items have found their way into Chinese furnaces. As per one

estimation around 260,000 tonnes of old European coins would be recycled by the

end of 2005. 260,000 tonnes of old coins would yield around 150,000 tonnes of

copper, 54,000 tonnes of steel and 43,000 tonnes of nickel. Germany, the region's

largest coin user, had almost 79,000 tonnes of old marks and pfennig coins. But

like most other EU countries, it sold most within 18 months of the euro's launch.

France had around 43,000 tonnes of old coins and still retains a large portion of

this total.

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Implementing the Changeover

Chapter 7. Implementing the Changeover

"Our future begins on January 1 1999. The euro is Europe's key to the 21st

century. The era of solo national fiscal and economic policy is over."

German Chancellor Gerhard Schrder, December 31, 1998.

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Transitional period

As agreed by the Madrid European Council, three year period between

launch of the euro currency on 1 January 1999 and introduction of notes and coins

on 1 January 2002, laid down in the changeover scenario. During this transitional

period the principle of no compulsion, no prohibition applied, meaning people

and businesses were free to carry out (non-cash) transactions in euro, but were not

obliged to do so.

On January 1, 1999, eleven of the countries in the European Economic andMonetary Union decided to give up their own currencies and adopt the Euro

currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy,

Luxembourg, the Netherlands, Portugal, and Spain. Greece followed suit on

January 1, 2001. The conversion rates were "irrevocably fixed," and the euro

officially "existed". At that point, the euro could be used for non-cash transactions,

such as making electronic payments, writing checks, or credit transactions. Even to

the extent that in most cases the balances were shown both in the national currency

as well as in the converted euro amounts. The currency changed, but because of the

established conversion rate, the value remained the same. Refer Implementing

Euro in Appendix IV.

The speed of the changeover from existing national currencies to the euro

varies from country to country depending on their respective national changeover

plans. Although, euro currency was introduced on January 1, 2002, some countries

had slightly different schedules for the end of circulation of their existing national

currency. The schedule for the euro introduction and endings for national

currencies:

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December 31, 2001 was the last day for electronic payments in the old

currencies.

December 31, 2001 was the last day that the German mark could be legal

tender; however, cash was accepted until February 28, 2002.

January 28, 2002 was the last day for the Dutch guilder.

February 9, 2002 was the last day for the Irish punt.

February 17, 2002 was the last day for the French franc.

February 28, 2002 was the last day for all other national currencies,

including the Belgian franc, Luxembourg franc, Italian lira, Greek drachma,

Finnish markka, Spanish peseta, Portuguese escudo, and Austrian schilling.

Euro bank notes and coins began circulating in the above countries on

January 1, 2002. At that time, all transactions in those countries were valued in

Euro, and the "old" notes and coins of these countries were gradually withdrawn

from circulation. When items were purchased with national currency, the change

was given in euros. Exchange of cash was also done in banks. Automated teller

machines (ATMs) began distributing only euros on January 1, 2002. During the

"dual circulation period," until the final deadlines were reached for changeover,

both national currencies and the euro were accepted, but after that point only theeuro was acceptable legal tender.

Continuity of contracts

Any contract, signed prior to the date when euro became legal tender, and

where monetary value is expressed in old currency is legal and valid. The

introduction of the euro did not have the effect of changing or modifying contracts

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and does not provide a legal excuse for trying to do so. Any financial amounts

expressed in national currency units in mortgage, insurance or any other contracts

was changed into euros at the fixed conversion rate.

Euro introduction (e-day)

The introduction of the euro was a key test of the success of Europe's

biggest project, the economic and monetary union. It was the single biggest issue

confronting European finance ministers for months, as the new european currency

would have to be introduced into circulation simultaneously for all participatingcountries, on January 1, 2002. How smoothly the changeover would go, and how

the currency would fare on the exchange markets, would be critically important for

the future of the currency as it would help the rest of the EU countries, who

decided not to join the monetary union, to reconsider. Problems of security and

logistics were some of the biggest ones. The sheer quantity of notes and coins that

would have to be introduced is staggering, providing obvious opportunities for

robbers. The confusion of the changeover was also seen as a window of

opportunity for counterfeiters and money launderers. European officials were

cautiously confident that banks and large companies would be prepared for E-day,

but doubts remained about the readiness of small and medium-sized enterprises,

and the risk of inflationary price rises in shops.

The EU's attempts to gauge the public mood suggested a gradual warming

towards the single currency. From spring to autumn 2000 the Eurobarometer poll

detected a drop in support for the euro from 58% to 55%, however spring 2001

saw a rebound to 59%. Among the 12 states that would soon be switching

currencies, support had risen to 66%. Of these countries, Finland was the only one

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where less than half of the population (49%) supported the euro in spring that year,

while Germany, Austria and Portugal came in at less than 60%. The most positive

were Italy and Luxembourg (above 80%) followed by Belgium, Greece and Ireland

(above 70%).

Information campaign

The time required for the transition to the new currency varied from

country to country, depending on how efficient the publicity and teaching

campaign had been. The first European planning in 1995, dictated that the new andthe old currencies would both circulate at the same time for the first 6 months.

However, in 1999 the decision was reduced to just 4 weeks. This change suggested

that the majority of financial transactions would be made in Euros by January 15,

2002, a mere 2 weeks after the initial introduction of the currency. To cope with

this, the Central European Bank and the national banks in the Euro-zone launched

a Europe-wide campaign to inform the public of the new changes. In November

1999, Publicis was chosen to help organize the campaign, with a predicted cost of

80 million euros for 2 years. The objective was to ensure that the general public

and professional cash handlers, in both the Eurozone and other countries, were

informed about the denominations of euro banknotes and coins, the visual

appearance of euro banknotes and coins, the security features and the changeover

modalities.

These messages were delivered via four main information channels.

Press and public relations activities designed to raise awareness of the

changeover and to make the public more receptive to the new cash. They

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mainly consisted of press conferences and euro events, as well as providing

material for the media (press kits, videos, etc.).

A Partnership Program, which involved more than 3,000 organisations

using Eurosystem information materials on euro banknotes and coins in

their communications to employees, customers and suppliers, and which

extended the reach and multiplied the impact of this information

A mass media campaign on TV and in the press was carried out from

autumn 2001 to early 2002. A public information leaflet (200 million

copies) and children's poster (7 million copies) in the 11 official languages

of the European Union were also distributed during that period in the euro

area countries. In addition, the leaflet was translated into 23 other

languages.

A dedicated website supported other areas of the program, and it allowed

the official partners to download materials that they could adapt and

reproduce

The smoothness and rapidity of the cash changeover in the euro area in 2001-02

reflects the success of the Euro 2002 Information Campaign (which complemented

national campaigns) and the logistics of the changeover.

ATMs

The Automatic Teller Machines in the 12 country-member states played an

important role to the successful transition to the new currency. ATMs would be the

first places to supply the European public with Euros, and because of the different

time zones across Europe Greece was the first country to receive the new currency.

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Following table shows number of ATMs installed in different countries during

transition period:

Country Number of ATMs Installed

Germany 60,000Spain 44,000France 35,000Italy 31,700

Portugal 8,500Netherlands 7,000

Belgium 6,600Austria 5,800Greece 3,897Finland 2,200

Ireland 1,235Luxembourg 350

The wide difference between the countries is attributed not only to the

difference in population figures and the number of banks, but also to the fact that

in some states ATMs were installed in super markets, metro stations, highways etc.

Although the task of adjusting all these machines to the new currency on time was

difficult and time consuming, it is estimated that 85%-90% of all ATMs were able

to supply the new currency by the end of the first week of January.

In this way, this mammoth transition was implemented by proper execution

of information campaign and logistical support backed by well-planned strategy.

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APPENDIX I

The European Union Expansion

Year Countries Joining

1951Germany, France, Italy, The Netherlands, Belgium and Luxemburg

1973 Britain, Denmark, Ireland1981 Greece1986 Portugal, Spain

1995 Austria, Finland, Sweden2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania,

Malta, Poland, Slovakia, Slovenia.

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APPENDIX II

European Monetary Union

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APPENDIX III

Path to Euro

Year A Step Forward

1948The Organisation for European Economic Cooperation (OEEC) is set

up in Paris. The Congress of Europe (a meeting of delegates from 16

European countries) agree to form the Council of Europe with the aim

of establishing closer economic and social ties1951

The European Coal and Steel Community (ECSC) is established toremove all import duties and quota restrictions on the trade of coal,

iron ore, and steel between the member states1952

The European Defense Community (EDC) Treaty is signed to form a

parallel European Political Community (EPC), which was rejected

later.1955

ECSC foreign ministers agree to develop the community by

encouraging free trade between member states through the removal of

tariffs and quotas.1958

The treaty of Rome establishes the European Economic Community

(EEC). That stipulates the eventual removal of customs duties on

trade between member countries. The EEC Treaty sets out allow the

free movement of workers, capital and services across borders and to

harmonise policies on agriculture and transport.1960Austria, Britain, Denmark, Norway, Portugal, Sweden and

Switzerland form the European Free Trade Association (EFTA) to

promote free trade but without the formal structures of the EEC.1972

Following the recommendations of the Werner Report, the EEC

launches its first attempt at harmonising exchange rates.1978

European Monetary System (EMS) is created. At the center of theEMS is the European Currency Unit (ECU).

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1987Single European Act establishes the goal of a single market by 1992.

1992Treaty on European Union (TEU), (Maastricht Treaty), is signed.

1994

Establishment of the European Monetary Institute (EMI).1995

European Council settles on "euro" as name for the single currency.1998

European Central Bank (ECB) is established in Frankfurt, Germany

and European System of Central Banks (ESCB) is formed.

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APPENDIX IV

Implementing Euro

Year A Step Forward

January 1 1999The euro becomes the currency for 11 member states.

January 1, 1999 -

December 31, 2001Transition period: changeover to the euro by the whole economy.

January 1, 2001Greece adopts the single currency.

August 30 2001European Central Bank releases final details of euro banknote.

September1, 2001

Euro banknotes and coins available to banks in Finland, Germany,

Luxembourg and Spain. Belgium, France, Greece, Ireland, Italy

and Portugal receives coins only. Sub-frontloading to retailers of

banknotes and coins begins in Germany, Luxembourg and large

retailers in Spain. Irish and Finnish retailers receive euro coins.September3, 2001

Austrian banks receive banknotes and coins.September 10, 2001

Sub-frontloading of banknotes to Austrian retailers.October 1, 2001Greek and Portuguese banks receive banknotes. Large Italian

retailers receive euro coins.November1, 2001

Belgium, Ireland and Italy receive banknotes in banks. Sub-

frontloading to Greek retailers of coins and Irish retailers receive

banknotes only.December1, 2001

France and the Netherlands (and coins) receive banknotes. Sub-

frontloading to retailers of banknotes and coins begins in Belgium,

France, Greece (banknotes only), Italy (large retailers only),

Netherlands (large retailers only) and Portugal.December 14, 2001

France, Ireland and the Netherlands make euro coins available to

the public through starter kits.December15, 2001

Austria, Belgium, Finland, Italy, Luxembourg and Spain release

starter kits.

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December17, 2001Germany, Greece and Portugal release euro starter kits.

January 1, 2002Euro notes and coins enter in circulation in 12 participating states

of the EU. All non-cash transactions will hereafter take place ineuros. Dual circulation period begins, in which consumers can still

use national currencies but will be given change only in euros.January 28, 2002

Dutch national currency ending as legal tender.February 9, 2002

Irish national currency ending as legal tender.February 17, 2002

French national currency ending as legal tender.February 28, 2002

Belgian, Greek, Spanish, Italian, Luxembourg, Austrian,Portuguese and Finnish national currencies ending as legal tender.

German commercial banks exchanging national banknotes and

coins for euros until at least this date. Commercial banks in

Austria, Finland, Greece and Ireland to decide individual deadlines

for currency exchanges.June 30, 2002

Last date commercial banks in France, Luxembourg, Portugal and

Spain will exchange national currencies for euros.December31, 2002

Last date commercial banks in Belgium and the Netherlands will

exchange national currencies for euros. Last date Portugal's central

bank will exchange national coins for euros.2003 and beyond The 12 Eurozone Central Banks have set various deadlines for

exchanging old national currencies:

Germany, Ireland, Spain and Austria, have said they willexchange old notes and coins indefinitely

Belgium and Luxembourg, say they will exchange old notes

indefinitely but set a deadline of the end of 2004 for coins.

Italy and Finland have each set a deadline of 10 years for notes

and coins.

Greece and France have each set a deadline of 10 years for

notes; Greece will exchange coins for two years, France for

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three years.

The Netherlands has set deadlines of January 1, 2007 for coins

and January 1, 2032 for notes.

Portugal will exchange notes for 20 years (the deadline for

coins is December 31, 2002).

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APPENDIX V

Irrevocable Fixed Exchange Rates in the Euro

1 =

Belgian Franc

40.3399

DeutscheMark1.95583

GreekDrachma340.750

SpanishPeseta166.386

FrenchFranc6.55957

IrishPound0.787564

ItalianLira1936.27

LuxembourgFranc40.3399

DutchGuilder2.20371

AustrianSchilling13.7603

PortugueseEscudo200.482

FinnishMarkkaa5.94573

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Bibliography & References

European Central Bank - http://www.euro.ecb.int/en.html

http://europa.eu.int/comm/economy_finance/euro

http://www.xe.com/euro.htm

http://www.fleur-de-coin.com/articles/euro.asp

http://www.encyclopedia.com/html/e/europnm1s1.asp

http://money.howstuffworks.com/euro.htm

http://www.polsci.ucsb.edu/faculty/cohen/inpress/bretton.html

http://www.ecuactivities.be/documents/publications/publication/1996_3/dinand.htm

http://specials.ft.com/euro

European Union & Euro Article by Dr. B. Bhatia, Synergy January 2005 Issue,

SIMSR Magazine.

Documents

005-Maulesh Buch-Evolution & Implementation of Euro Currency