Lecture 4 Birth of the Euro

Lecture 4

Birth of the Euro

欧元诞生

Stage 1 Dictation

You will hear a list of words and expressions that will appear in the incoming lecture. Please write them down in the space provided below.

1) legal tender

2) stabilize

3) fluctuation

4) unit of accounting

5) Maastricht Treaty

6) budget deficit

7) national debt

8) peg

9) invoicing

10) traveler’s check

11) mint

12) price transparency

13) investment fund

14) fragmented

15) liquid

16) flaw

17) inherent

18) boast

19) treasury

20) European sovereign debt crisis

Stage 2 Listening Comprehension

Now, you will listen to a lecture on Birth of the Euro two times. This lecture is delivered at a fairly slow speed. As you listen, find answers to the following questions:

1.Who are the members of the Eurozone?

They are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Greece, Slovenia, Cyprus, Malta, Slovakia, and Estonia, Latvia, and Lithuania.

2.What was the goal of the Treaty of Rome?

It was to create a common market in Europe in order to increase economic prosperity and contribute towards an ever closer union among the peoples of Europe.

3.What happened in 1979?

The European Monetary System was established and the European Currency Unit (ECU) was created.

4.When the euro was first introduced, what did the Eurozone countries do?

They officially pegged their exchange rates to the euro and began to use it in non-cash transactions and accounting.

5.How does the euro enable the Eurozone market to function more efficiently and

grow more steadily?

Through price transparency, elimination of exchange rate fluctuations, elimination of various transaction costs, enhanced competition, and more attractive opportunities for foreign investors.

6.Why is the euro accused as “an incomplete currency”?

According to George Soros, the euro is an incomplete currency, for the Eurozone “established a monetary union without a political union.” T he European Central Bank was created but a common treasury was not in place. Because a sovereign banking system is missing from the design, “the euro has become the focal point of the current [European sovereign debt] crisis.”

Stage 3 Guided Note-taking

In this stage you are guided to take notes on the lecture. As you listen, try to complete the spaces left for notes. In order to speed up your note-taking, use symbols and abbreviations wherever possible.

Lecture Script:

Birth of the Euro

On January 1, 1999, the world witnessed one of the most profound and far-reaching economic events of modern history: the euro was born. As you may know, the euro is the common currency and sole legal tender of the Eurozone, also known as Euro Area or Euroland. Currently, the Eurozone has a population of over 330 million, larger than that of the United States. The founding members of the Eurozone are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Later, Greece joined in 2001, Slovenia in 2007, both Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, and Lithuania in 2015.

But the euro didn’t come overnight. As a matter of fact, the euro has walked a long way to get to where it is now. To give you an idea of what the euro has gone through, I begin with the early efforts made by Europe after World War II.

In 1951, in order to promote European economic cooperation, Belgium, France, West Germany, Italy, Luxembourg and the Netherlands signed the Paris Treaty to create the European Coal and Steel Community. Then in 1957, these countries entered into the Treaty of Rome, establishing the European Economic Community (EEC). Their objective was for Europe to create a “common market” to increase economic prosperity and contribute towards “an ever closer union among the peoples of Europe”. However, the Treaty of Rome made no mention of an economic and monetary union and a single currency.

It was not until two decades later that the movement toward a common currency accelerated. In 1979, the European Monetary System took effect in an attempt to stabilize inflation and stop large exchange-rate fluctuations among European countries. This system led to the creation of a currency unit called ECU. You may wonder: what is ECU? ECU stands for

European Currency Unit, which was a basket of the currencies of the EEC member states. But the ECU was not an actual currency. It was developed by the members as a unit of accounting; that is to say, it was an artificial currency initiated for their internal accounting purposes.

In 1992, a more ambitious move was taken. The members of the European Community signed the Maastricht Treaty, setting a deadline of January 1999 for a shared currency. The treaty created the European Union (EU) of 12 countries on November 1, 1993 and laid the groundwork for shared economic and monetary policies. In order to participate in the new currency, member states had to meet strict criteria, such as a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, low inflation, and interest rates close to the EU average.

Through the 1990s, the necessary financial institutions were put in place. For example, the European Central Bank (ECB), headquartered in Frankfurt, Germany, was set up in 1998. The ECB was to be responsible for setting a single monetary policy and interest rate for the adopting nations.

Then, on January 1, 1999, the euro was introduced to world financial markets, replacing ECU at a ratio of 1:1. The 11 Eurozone countries officially pegged their exchange rates to the euro and began to use it in non-cash transactions and accounting. Companies started using the euro for internal reporting, invoicing and issuing bonds. Stocks began trading in euros. Banks started to offer euro credit-card accounts. People were able to pay mortgages and use t raveler’s checks in euros, too.

However, for quite some time, both the euro and the national currencies of the Eurozone countries coexisted, and the euro existed only in the form of cashless payments such as checks, transfers, and bank cards. It was not until January 1, 2002 that euro banknotes and coins entered circulation. During the first two months of 2002, the national currencies of the member countries were completely replaced by the euro. In preparation of the euro paper money and coins, 15 billion pieces of paper money were produced and 50 billion coins were minted.

Since the introduction of the euro, there have been a number of clear benefits to the Eurozone citizens. In the first place, people can travel more easily both within and outside the euro area because they don’t need to change currencies every time they cross a border. Secondly, the single currency allows the European Union’s single market to function more efficiently and grow more steadily through price transparency, elimination of exchange rate fluctuations, elimination of various transaction costs, enhanced competition, and more attractive opportunities for foreign investors. Thirdly, a single currency zone opens up huge opportunities for both savers and borrowers. For one thing, the euro helps provide a single market for financial operators such as banks, insurers and investment funds; for another, small and fragmented national capital markets evolve into a larger, deeper and more liquid financial market. As a result, savers are offered wider and more diversified investment and saving opportunities, while borrowers can raise money more easily on capital markets. However, critics argue that the euro has inherent flaws. George Soros, a well-known investor, claims and I quote, “The eur o is an incomplete currency to start with. In 1992, Maastricht Treaty established a monetary union without a political union. The euro boasts a common central bank but it lacks a common treasury. It is exactly that sovereign banking that financial

markets are now questioning and that is missing from the design. That is why the euro has become the focal point of the current [European sovereign debt] crisis.” End quote. Nevertheless, the euro has become one of the four major world currencies, along with the U.S. dollar, the British pound, and the Japanese yen. So, good-bye marks, good-bye francs, good-bye lira, good-bye guilder, good-bye peso, and good-bye so forth.

Note-taking Model:

Topic: Birth of the Euro

1/1/1999 € = sole leg. tender - €zone/area/land w/ pop. +330 m. > USA

-founders: Aus. Bel. Fin. Fr. Germ. Ir. It. Lux. Net. Port. + Sp.

-Gr. (2001), Slon. (07), Cyp. & Mal. (08), Slok. (09), Est (11)

-Latv. (14) & Lith. (15)

1951 - prom. Eur. econ. coop – Bel. Fr. WG. It. + Lux. signed Paris Treaty

- ECSC created

1957 - T/ Rome → EEC

- obj. → com. mkt. - ↑ econ. prosp.

→ closer u. – Eur. peop.

- b. no econ. & mon. u. / single cur.

1979 - EMS → stab. infl. & stop FX fluct.

- ECU = basket of cur. – EEC memb.

= unit of acctg. (artif. cur.)

1992 - Maastricht T. – deadline (1/1999) for sh. cur.

– EU (12 cos.) – 11/1/1993

–grwk. – sh. econ. + mon. pol.

–Criteria: 1) budg. def. < 3% GDP

2) debt ratio < 60% GDP

3) low infl.

4) i. r. ≈ EU avg.

1998 - ECB – Frkfurt. Germ. – resp.: set single mon. pol. + i.r. – memb.

1/1/1999 - € repl. ECU – 1:1

-€zone cos. peg. exch. r. - € - noncash trans. + acctg.

-€ - int. rep., invoicing, iss. bond, tr. st., cr.-c. a/c, mortg., trav. check

(cashless)

1/1/2002 - € bknts. + coins

Feb. 2002 - nat. cur. repl. ← € (15 b n. paper notes + 50 bn. coins)

benefits 1. trav.easily w/i + outside €area ∵no $ change

2. single mkt. func. eff. & gr. stead. ← pr. transp., no FX fluct., no trans.

costs, enh. comp. + attr. opp.

3. opp. → savers + investors∵single mkt. = larger, deeper + more liq.

- saver: diversif. invt. + svg. opp.

- borrower: raise $ easily – cap. mkt.

flaws - inherent

-G. Soros: “…incomplete…; Maastr. T. …mon. u. w/t pol. u. …

common c.b. but …lacks … com. treasury. …s overeign bkg.… is

missing…That’s why € = focal point …current ESD crisis.”

major wld. cur. - US$, ￡, ￥, €

bye → DM, fr. lira, guilder, peso, etc.

Stage 5 Testing 1: Multiple-Choice Questions

Now you will hear 10 questions about the information you heard in the lecture. Each question will be spoken two times, but it will not be written out for you. You must listen very carefully to each question. After hearing a question, you must read the four possible answer choices provided. You will then refer to your notes and select (a), (b), (c) or (d) – whichever is the best choice.

1.When did Malta join the Eurozone? (b)

2.Which of the following groups are the founders of the European Coal and Steel

Community? (a)

3.Which of the following descriptions is a characteristic of the ECU? (c)

4.When was the European Union established? (b)

5.What are the requirements for becoming a member of the Eurozone? (d)

6.Where is the European Central Bank located? (a)

7.How was the euro used between January 1999 and January 2002? (d)

8.How many euro banknotes and coins were produced in order to replace the national

currencies of the member countries in 2002? (b)

9.Why is the Eurozone able to offer more opportunities to both savers and investors? (a)

10.Which of the following was the original currency unit of the Netherlands? (c)

Stage 5 Testing 2: True-False Statements

In this part of the test, you will read ten statements about the information presented in the lecture. First read the statement carefully. Then check your notes to decide whether the statement is true or false. If it is true, write a T in the blank space before the statement; if it is false, write an F in the blank.

1 (T);

2 (F);

3 (F);

4 (T);

5 (F);

6 (T);

7 (F);

8 (T);

9 (F); 10 (T)

Stage 7 Expanded Reading

In this stage you are expected to broaden your horizon into the topic of the lecture. Please read the following article carefully.

参考译文：

欧元危机与零售业

2008年9月15日，美国投行巨头雷曼兄弟破产，引发了全球金融危机。与此同时，一波债务危机的浪潮也席卷欧盟，致使多国面临债务违约的风险，欧元的未来变得扑朔迷离。

大多数评论家认为，欧洲的主权债务危机始于2009年11月5日。当时，希腊公布其财政赤字占国内生产总值12.7%，高于之前所披露数值的两倍以上。实际上，欧洲主权债务危机早在2008年冰岛银行体系崩溃时就开始了，2009年蔓延至希腊、爱尔兰和葡萄牙，2010年波及西班牙和意大利。上述国家在这场欧洲主权债务中呈现出以下共同点：金融机构纷纷破产，政府负债率企高不下，国债收益率一路下滑。本次债务危机已演变成各方对欧洲商业与经济的信心危机。

2012年年初，麦肯锡公司发表了一份关于欧元危机的分析报告，对欧洲货币联盟的诸多优势进行了详述与量化。报告指出，欧元区在设计与实施中存在某些严重的缺陷。自那时起，危机所带来的威胁在很大程度上似乎被淡化了，因为欧洲中央银行推出的长期再融资操作，向800多家银行发放了超过1万亿欧元的三年期贷款，缓解了金融系统的困境。欧洲稳定机制也起到了提振作用。欧洲各国的财政日趋好转。大家普遍认为深陷危机的五个国家—希腊、爱尔兰、意大利、葡萄牙和西班牙，亦称“GIIPS（戏称欧洲五猪）”—的负债总额，已从2010年的2600亿欧元降至2012年大约1500亿欧元。欧洲的政治家们开始采取增强货币联盟体制的措施，比如创建了统一的监管机制。也许最振奋人心的是，欧洲经济体之间的不平衡，即在财政联盟中的国家之间存在的经济增长、投资和工资等方面的差异，现在正在缩小。以前这些问题常用货币政策去解决，但收效甚微。有数据显示，欧洲国家与贸易伙伴国的贸易平衡状况良好；GIIPS各国与其北方邻国之间的贸易差额正在逐渐减少。

然而，欧元区出现的麻烦才刚刚收拾完毕。尽管财政赤字正在下降，但目前债务总额的水平似乎难以持续，紧缩的财政预算并未达到预期效果。我们对国际货币基金组织的经济预测以及体现在“财政契约”中的最新财政目标进行了分析，结果表明对于某些国家来说，这些财政目标遥不可及。

由于存在着长期不确定性，投资占国内生产总值的比重急剧下降；意大利和西班牙目前的投资水平，与二十世纪九十年代中期持平。失业率仍然保持在历史高位，个人消费也日渐萎缩。的确，很多人都认为这场危机目前正处于关键阶段。

虽然本轮危机存在多种发展态势，但最有可能出现的是趋向稳定。不过，各国走向未来稳定的路径各不相同，因此，各国零售商采取的行动也会大相径庭。在遭受危机重创的国家，零售商必须找到新的经济模式，削减运营支出不足以弥补收入损失，这是因为中期的租金是固定不变的，同时商店还需聘用少量的工人以维持运营。在这种情况之下，零售商面临以下严峻的问题：跨国零售商由于受到长期租约的影响，因此尽管难以抉择，但是也要必须选择是否应该退出国外市场？是否应该把大部分的股份卖给当地的企业，并保留将来卖掉剩余股份或回购已售股份的权利？如果选择留守国外，那么针对拮据消费者目前低档消费的局面，跨国零售商应该如何从中获益？是否可以通过改变商品的混搭销售，或者扩大低端自有品牌的生产来吸引顾客？是否可以有选择地缩减实体店数量，关闭经营不善的门店，然后将产品销售转移到线上渠道？对于受到危机影响不大的国家，经济复苏虽然路途遥远，但是前途依旧光明。不过，消费支出近期难以推动营业收入的增长。

在这种情况下，零售商必须要思考的问题是：1. 面对实体零售转向线上零售，如何把握契机，从不景气的市场中胜出？2. 减少扩大或装修实体店的资本支出，将其转移到线上渠道，但幅度应该多大？3. 资本支出（即长期投资）与运营支出（即短期周转）的合理比例，如何确定？

每个欧元区的国家都必须考虑这两个至关重要的问题：第一，运营中存在着与供应链相关的风险，如非食品零售商的供货来源有相当大一部分来自非欧元区的国家，因此会面临很高的汇率风险。第二，汇率存在着不确定性，目前汇率大幅波动，因此，在是否需要套保以及如何套保的问题上，零售商必须制定明确的应对策略。

做最好的期待，做最坏的准备—这是一句经久不衰的至理名言，目前最适用于处于风雨飘摇的欧元区。万事开头难，因此，每个公司的高层都应该首先对问题进行讨论，然后召开一系列制定多种方案的会议。每个方案在制定时，都要结合公司的现金流、产品流向以及供销关系等因素，这样在未来实施时会给公司带来哪些具体的影响，便可一目了然。

（来源：摘自《欧元的未来》麦肯锡公司版权所有2013年）