ABSTRACT
The euro was formally launched in January 1999 and, at the time of writing (January 2001), the euro’s value against the dollar is substantially below its initial level. There was a general decline throughout the first two years of the euro, with a low reached in May 2000, and again in September 2000. A further, all-time low was reached in October 2000, but the euro has recovered somewhat since then. However, it still remains lower than its initial value. Figure 2.1 provides the details. The purpose of this chapter is to examine the causes of this general decline in the value of the euro. The various explanations offered in the literature are assessed. The introduction of the euro and the associated operation of the euro system, that is the European Central Bank (ECB) and the National Central Banks (NCBs), has been under considerable scrutiny. This is reflected in a relatively large number of scholarly papers providing a detailed assessment of the performance of the euro, the ECB and of the euro area macroeconomy more generally (for a recent example see OECD, 2000). Although our assessment draws on these papers in a critical manner, we also focus on our own research and published output (see, for example, Arestis, Brown, and Sawyer, forthcoming).
