The Euro has managed to play a less external parity as compared to the various currencies that it eliminated. The introduction of the euro quickly transformed the European financial markets. For instance, government bonds were rapidly integrated into the bond market. A notable record of the growth of the corporate market was that of 1999 when an impressive rise of 300% was recorded in euro-denominated issuances. From 1999, the proportion that the euro acquired in the total outstanding international debt securities has been steadily rising from 21% to 31%.
It is estimated that approximately a quarter of the entire foreign exchange reserves are currently in Euros (Chang, 1999 p. 18). Although the dollar is still regarded as the world’ s most vital currency, the euro has grown favorable to take second place, and the trend is expected to increase in the near future. The aspect of the European Monetary Union that has generated the worst publicity is the stability and growth pact. Contrary to the popular belief, the aspect was not part of the original plan that was created at the Maastricht Treaty.
The stability and growth pact was introduced in 1997 after a council of finance ministers negotiated and adopted the pact. In some way, the pact contradicted or tried to alter the provisions of the original treaty, which posed a danger of rising in cases of indiscipline in the financial market. Where the original treaty called for national budgets to maintain a normal deficit below 3% of GDP, the pact advocated for national budgets to be close to equilibrium, or surplus over the economic cycle (Gower & Thomson, 2002 p. 47).
Recently, five European countries were subjects of the excessive deficit procedure. Only Greece, whose deficit ratio in 2004 was 6%, had a deficit ratio that was marginally above 3%. The treaty that gave birth to the European Monetary Union points out that, what really matters is the maintenance of the government's financial position.
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