The European Monetary System ( Ems )

1977 Words8 Pages
The Euro was launched as a single currency electronically on 1 January 1999 in 11 European Monetary Union (EMU) member countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain). However, the origins of its conception go back to the launch of the European Monetary System (EMS) in March 1979. The EMS was created with the goal of currency stability and low inflation across Europe via an Exchange Rate Mechanism (ERM) that was based upon a quasi-currency, the European Currency Unit (ECU), which represented the weighted average value of member countries’ currencies (European Central Bank, 2014). In 1991, the 15 members of the European Union met in Maastricht, Netherlands, to set up a…show more content…
The European sovereign debt crisis refers to the ongoing crisis that has affected countries of the Eurozone since 2009 when a group of 10 central and eastern European banks requested bailouts and a 1.8% decline in EU economic output was forecasted by the European Commission (Wagstyl, 2009). The crisis has posed great difficulties and even impossibilities for some EMU members to repay sovereign debt without the external assistance in the form of emergency loans (“bailouts”) from the ECB or International Monetary Fund (IMF). Examples of this include Greece and Ireland in 2010, Portugal in 2011, Spain in 2012 and Cyprus in 2013 (UK Parliament, 2014). Some of the causes of and factors that have exacerbated the crisis include a misperception of risk leading to rising national debt levels, trade imbalances, structural issues with the Eurozone system and monetary policy inflexibility. The adoption of the euro led many EMU countries of different creditworthiness receiving similar, very low interest rates for government bonds and private credits during the years preceding the crisis due to the inherent belief in investors that the euro would induce endogenous economic convergence in the Eurozone. In 2005, ECB President Jean-Claude Trichet claimed that yields on Eurozone sovereign bonds were driven overwhelmingly by “euro-area-wide shocks” and there was only a small effect from
Open Document