International Business

1. Euro Issues
Dr. Sunita Sukhija
Assistant Professor in Commerce
Govt. National College,
Sirsa(HRY)

2. Introduction
• The Euro is a bold experiment to create the largest currency
area in the World. However, the current Euro crisis have
revealed deep flaws in the structure of the single currency
The Euro involves:
A single currency within the Eurozone area.
• A common monetary policy. Interest Rates are set by the
ECB for the whole Eurozone area.
• Growth and Stability Pact. In theory there are limits on
government borrowing, national debt and fiscal policy.
However, in practice member countries have often violated
the strict limits on government borrowing.

3. • Euro, the world's newest currency, may become its most powerful
currency.
• From riskmanagement to globalization, India will have to quickly
learn to adapt to the new world of Euro finance.
• In terms of trade volumes, the Euro is expected to be bigger than
the US dollar in the long run. All globally involved Indian
corporations will therefore have to become Euro-centric. The
advent of the Euro has the frame of reference for India Inc. 's deals
and dealing with the rest of the world. It will re-map our export
markets, restructure our global operations and reorganize our
financing plans. Euro has united 17 countries-Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, Greece, Slovenia, Cyprus, Malta, Slovakia and
Estonia-into one fiscal superpower and mega market.

4. • A potential challenger to the supremacy of the US
dollar over foreign exchange transactions of every kind,
it has given birth to a financial system that accounts for
a fifth of the global economy and world trade, not to
mention the planet's largest reserves of gold and other
currencies. Issued and administered by the European
System of Central Banks-comprising the European
Central Bank, headquartered in Frankfurt, and the 17
National Central Banks of the member countries-the
Euro will need new strategies to manage our foreign
exchange exposure, to hedge our financial risks, and to
reallocate our resources.

5. Background to the EMU
• Economic and Monetary Union (EMU) in Europe
refers to the movement towards economic and
monetary unification in the European Union, with
the ultimate goal of introduction of a single
currency. The process of economic integration in
Europe began with the creation of European
Economic Community (EEC), through the Treaty
of Rome in 1957. The six founder members were
Belgium, France, Germany, Italy, Luxembourg and
the Netherlands. Subsequent to the signing of the
treaty, a common market was set up in Europe
with common tariffs in member countries.

6. • Over the next few decades, the six-member EEC evolved into the
present twentyseven member European Union (EU). The EU
countries included Denmark, Ireland and United Kingdom (which
joined in 1973), Greece (which joined in 1981 ), Spain and Portugal
(which joined in 1986), Austria, Finland and Sweden (which joined
in 1995), Czech Republic, Cyprus, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia, Slovenia (which joined in 2004),
Bulgaria and Romania (which joined in 2007) apart from the original
six EEC member countries. The objectives of the European Union
include:
• Creation of an area without internal frontiers
• Strengthening of economic and social cohesion t
• Establishment of economic and monetary union, including a single
currency

7. Problems and costs of the Euro
• The Euro is not an optimal currency area. If a state in the US, such as New York ,was in recession,
workers in New York could move to New England and get a job. However, in the Eurozone this is much
more difficult; it involves moving country and possibly learning a new language. There are more barriers
to the movement of labour and capital within a diverse region like Europe. Therefore, an unemployed
Greek can't easily relocate to Germany.
• Limits Fiscal Policy. With a common monetary policy it is important to have similar levels of national
debt, otherwise countries may struggle to attract enough buyers of national debt. This is a growing
problem for many Mediterranean countries like Italy, Greece and Spain who have large national debts
and rising bond yields.
• Lack of Incentives. It is argued that being a member of the Euro protects a country from a currency
crisis. Therefore, there is less incentive for countries to implement structural reform and fiscal
responsibility. For example, in good years Greece was able to benefit from very low bond yields on its
debt because people felt Greek debt would be secured by rest of Europe. But, this wasn't the case, and
Greece were lulled into a fall sense of security.
• No scope for devaluation. Since the start of the Euro, several countries have experienced rising labour
costs. This has made their exports uncompetitive. Usually, their currency would devalue to restore
competitiveness. However, in the Euro, you can't devalue and you are stuck with uncompetitive exports.
This has led to record current account deficits, a fall in exports and low growth. This has particularly
been a problem for countries like Portugal, Italy and Greece.

8. Euro Issues
• Euro issue is a name given to sources of finance or capital available to
raise money outside the home country in foreign currency. The most
commonly used sources of funds that fall under Euro issues are
American Depository Receipts (ADR), Global Depository Receipts (GDR),
and Foreign Currency Convertible Bonds (FCCB) among others.
• FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS)
• FCCBs are very similar to bonds in nature and can be converted into an
equity stock by the bond holder at a later date at a pre-agreed price.
These, like ADR and GDR, are issued by Indian companies outside the
home country in foreign currency. These enjoy higher preference as they
are issued as bonds, but at the same time, do not dilute the holding on an
immediate basis and can help companies to raise money at a cheaper rate
of interest. The FCCBs issued by companies also have to be done within
the set of guidelines permitted by the government of India.

9. Thanks