Synopsis: This is a ten page APA format research paper with sixteen works cited.

This research paper will explore the following subjects: 1) To generate a history of the Euro prior to it's generation. 2) To ascertain who is in the Euro market and when did they join. 3) To ascertain by means of market factors and forces where the Euro is heading and how is it moving. What principle impacts does the Euro have today on U.S. principal business interests? 4) If the Euro should ever begin to fail, what are solutions in order to correct the problem? What are the possibilities of a multi- tier value for the Euro? What is your opinion if the Euro will become the currency of choice worldwide versus the dollar. 5) Estimate the value of the Euro for April 21, 2011.

The Euro, The History of the Euro and The Analysis of the Viability of the Euro Replacing the Dollar as The World's Reserve Currency

The History of the Euro

The Euro was initiated as a European Monetary Unit on January 1, 1999 with the ratification of the Maastricht accord by the European member nations. The Euro evolved into the single monetary unit of the twelve member European Union in 2002. These European nations were allowed to become members of the European Union by means of the Maastricht accord, the Copenhagen Criteria and the Maastricht criteria. These are a set of requisites for membership into the European Monetary Union (EMU).

The Copenhagen criteria established a set of rules and requisites for its European member nations. The governments of the member nations are required to abide by a set of criteria which guarantee rule of

law, human rights and respect of the established political environment. Another requisite for the potential member nations is to possess a functioning market economy. In addition to the requisites imposed on potential member states by the Copenhagen criteria, the potential member nation must demonstrate that it has a functioning market economy and the capacity for the potential member nation to compete under the economic pressures and market forces.

The Maastricht criteria is a set of requisites that determine whether a nation is ready to join the European Economic Community and apply the use of the Euro as its monetary unit. This accord includes goals for each potential member's national inflation rate and rate of economic growth, parameters for budget deficits, national debt, government bank interest rates and exchange values. The Maastricht criteria was applied to assure price stability within the European Economic Community. The Maastricht criteria is also known as the convergence criteria. The potential member nation must be able to demonstrate that its economy can be managed without excessive currency devaluations. This is part of the requisites for potential member nations to gain membership into the European economic Community.

The Maastricht accord is named after a Dutch town. In 1991, 12 of the proposed members of the future European Economic Community convened and planned the conception of the European Union. The European Union was crated in Maastricht and the concept of the Euro was born. The Maastricht accord, also known as the Treaty on European Union was ratified on January 7, 1992 and went into effect on November 1, 1993.

The Maastricht accord is based on three pillars. One of the pillars of the Maastricht accord is the concept of European supra nationalism, that all member nations pertain to the European continent. This is one of the three pillars of the Maastricht accord. Another pillar which is of tremendous significance is the Common Foreign and Security Policy (CFSP), which coordinates foreign policy for members of the European Union. The Justice and Home Affairs (JHA) is the cornerstone of the Maastricht accord. As per the Maastricht treaty, a European Central Bank was established in order to set and determine the interest rates for the European Economic Community.

Originally, the Maastricht acccord consisted of eleven member states which were the Kingdom of Belgium, the Kingdom Of Denmark, the Federal republic of Germany, The Hellenic Republic, The Kingdom of Spain, the French republic, Ireland, the Italian Republic, the Gran Duchy of Luxembourg, the Kingdom of the Netherlands and the Portuguese republic. The original provisions of the Maastricht treaty were not ratified by member nations of the United Kingdom and Northern Ireland.

As of April 7, 2011, the Euro is valued at 1.4484/88, which is 1.26% less than the previous valuation. Over the past month, the Euro has been in an upward trend. As of 11;45 GMT, the European Central Bank arrived at a decision of high significance which was to agree on European Central Bank interest rates at 1.25% which is .25% more than previously analyzed and the same as the analysts predicted. The news of the European Central Bank's decision to determine the interest rates at 1.25% was an increase of .25% from the previous interest rate. This news of high significance with respect to the valuation of the Euro was preceded by the news of the EUR Euro-Zone Gross domestic product for the fourth quarter as measured on a month to month basis of 0.3%, which is also of high significance with respect to the market valuation of the Euro. This statistic is quarter to quarter. The EUR Euro- Zone

Gross Domestic product for the fourth quarter as of February was 2.0%. This statistic is measured on a year to year basis. Other significant indicators of the economic tendency of the Euro in the near future are the EUR Euro- Zone Household Consumption which is measured from quarter to quarter at 0.4%, which corresponds with the economic analyst's predictions. The EUR Euro Zone Gross Fixed capital for the fourth quarter was announced at -0.5% which was less than the predicted levels. The previously measured levels were at -0.6%. The statistics are of medium impact and significance to the valuation of the Euro, the European monetary unit. The EUR German Factory orders which are measured on a month to month basis indicated that in the month of February at 2.4% which bis significantly higher than the 0.5% predicted and is lower than the previous measurement of 3.1%. This statistic indicates a decline in the volume of factory orders in the month of February in Germany. The analyst's forecast was significantly less than what was realized. This is measured on a month to month basis. The EUR Factory Orders as measured fro year to year was at 20% which is much more than the analysts' predictions of 17.5% and greater than the previously measured 16.5%. These were the economic events that affected the valuation of the Euro for April 6, 2011.

On April 7, 2011, the EUR French Trade Balance was at ( 6553) Million Euro which is a greater deficit than the analysts' predictions of (-5660) Million Euro and significantly more than the previously measured (-6124) Million Euro. The EUR German Industrial Production as measured from year to year rose to 14.8%, which is an increase from the previously measured 12.7% and greater than the economic analysts' prediction of 13.2%. The EUR German Industrial Production as measured from month to month was measured at 1.6% which is a decrease from the previously measured 2.0% and significantly higher than the analysts' prediction of 0.5%.

The EUR German Trade balance is 12.1 Billion Euro, is significantly higher than the 10.1 Billion Euro which was previously measured and slightly lower than the analyst's expectations of 13.0 Billion Euro. These recent developments are of high impact to the future valuations of the Euro. The German Current Account is at 8.9 Billion Euro which is significantly higher than the previous measurement of 7.1 Billion Euro and significantly less than the analysts' expectations of 12.0 Billion Euro. The EUR German Exports as measured month to month for the month of February. The EUR German Exports as measured from month to month for the month of February was at 2.7% which is significantly higher than the previous measurement of -1.0% and higher than the analysts' expectation of 2.0%. The EUR German Imports as measured from month to month were 3.7%, which is significantly higher than the previous month's measurement of 2.3% and significantly higher than the analysts' expectations of 1.0%. Another important statistic in the valuation of the Euro is the EUR Bank of France Business Sentiment Index which remained constant at 110.0, which is unchanged from the previous month's measurement and the same as the analysts' predictions. The EUR French Central Government balance is at -28 billion Euro which is significantly lower than the previous month's measurements.

2010 was a tumultuous year for currencies. The Euro hit an all time low that had not been reached since 2006, due to the debt crisis of Greece and the possibility of default of the Kingdom of Spain and Ireland. The U.S. Dollar gained 10% in value against the Euro. The European debt crisis caused the Euro to decline in value, as the member nations with greater economic capacity came to the assistance of the member nations with less economic capacity. The U.S. Dollar in 2010 was perceived as a safe haven for investors, and as a result, the U.S. Dollar enjoyed increases during the months of May and June of 2010. The U.S. Dollar lost 5% against the Chinese Yuan and lost 10% against the Canadian dollar and Australian dollar. Currencies such as the Canadian dollar and the Australian dollar achieved and exceeded parity with the U.S. Dollar. The U.S. Dollar is anticipated to enjoy a moderate growth

over 2011.

The Euro started the 2010 year in an upbeat mood, as the European debt crisis increased in intensity, the Euro suffered a decline and as a result, the Euro hit a 4 year low against the U.S. Dollar in 2010, reaching a low of 1.22085 in June 2010. This low had not been reached since 2006. In the latter part of 2010, the Euro recuperated some of the value that had been lost in 2010 and by December 31 st, 2010 had been valuated at 1.3362 .

In 2011 many analysts are expecting a lackluster performance from the Euro. However, the Euro has surged approximately 10% in value during the first quarter of 2011. The resiliency of the Euro in order to survive economic upheavals was tested in 2010, with the European debt crisis that began to over shadow the Hellenic Republic, the Kingdom Of Spain and Ireland. Fopr the time being, investor confidence has been recuperated and the economic statistics included in this research paper demonstrate that the Euro is safe and sound. The stability of the Euro is dependent on the resolution being reached by the finance ministers of the European Monetary Union. The Bank of England's David Miles stated: We do have a policy tool, quantitative easing, which remains a potentially powerful tool and one that we might come to use.

The value of the Euro as compared to the U.S. Dollar is at 1.4484/88 with low volatility and low volume of trade. The current trnd is for the Euro to increase in value with an increase to come within the next few weeks. As of April 21, 2011 , the value of the Euro as compared to the U.S. Dollar may be upwards of 145.00. The news of the economic events are of tremendous significance to the valuation and the psychology behind the valuation of the Euro. The Industrial indexes of the U.S.A. are directly

related to the valuation of the Euro. As the Industrial indexes of the U.S.A. rise so will the Euro. As the Dow Jones Industrial Index is climbing towards 13,000, the Euro will probably rise in value proportionately.

What would happen if the Euro started to sink?

Recently, the British Pound has been losing value against other currencies. This event signals a possibility of a regression to the policies of the 1970's and the 1980's, where there were nationalizations that were performed unprofitably and increased probability of default. Notwithstanding, as we enter the 2010's, the devaluation of the British Pound may be healthy for the British economy. Lower currency values reduce the cost of British exports to consumers. This advent also allows the British economy to expand its economic potential by allowing for a healthy contraction in its economy. There have long been expansions and contractions with respect to the value of the Euro.

Martin Feldstein at a recent discussion which took place at the American Economic Association describes the fact that the laws and requisites imposed upon the members of the European Union must be individually adjusted for each potential member nation, as one size cannot fit all. Feldstein continues to explore the situation that would occur if one or more of the member nations elected to withdraw from the European monetary Union. Feldman states that the international value of the European currency, the Euro would adjust in order to make products more competitive.

Imagine this scenario: A member country such as Italy were to decide to withdraw from the European

Monetary Union and revert to the use of the Lira. This scenario would finally result in an ensuing bond market crisis. This would cause an unprecedented financial crisis for the Euro.

The adoption of the Euro is irreversible. The European Centralized Bank has adjusted the rates as economic activity has declined in member nations. If the Euro Zone were ever to dissolve, it would result bin unprecedented economic damage and usually the members with greater economic capacity bail out the flailing members. The Hellenic Republic, The Kingdom of Spain and Ireland cannot be allowed to collapse, as their economic collapse would sent severe aftershocks throughout the entire European Union. The flailing economies would be treated differently Than the Federal Republic of Germany or the Republic of France.

The U.S. Dollar is the world's reserve currency. The total value of Euros in circulation is approximately 828 Billion Euros compared with 753 Billion Euro circulated in dollars by the U.S. This was at the end of 2006. Many countries such as Russia or the United Arab Emirates have elected to shift away from the exclusive use of the dollar for economic valuations and diversify to Euros. The Euro is the first currency that can compete with the dollar on a global level. With the U.S. Trade deficit expanding and the U.S. Becoming the greatest debtor country in the world, with China holding about 20% of all foreign reserves (approximately $ 1 Trillion U.S.) this could cause many to diversify toward the Euro or a Euro based currency. Within the next five to ten years, it is quite possible that the Euro may gain ground on the dollar as the world's reserve currency. In order to compensate for the current deficit and maintain the value of the dollar, the U.S. Needs to attract about $75 Billion dollars a month in new investments from international investors.

There are a multitude of reasons why a country would diversify from U.S. Dollars to Euro. Saddam Hussein turned his back on the usage of the U.S. Dollar for the valuation of petroleum based assets in Iraq. This occurred in the tear 2000, at that time the Euro was valued at 82 cents on the dollar. Saddam Hussein wanted the oil payments made to Iraq to be transferred in Euros for the petroleum exported. Ax of November 2000, Iraq began to value its petroleum based assets in Euro. This is more of an indication of a growing trend. Iran has also converted the majority of the funds held by its central bank as central bank assets to Euro. North Korea has elected to do the same. Venezuela is considering the transfer of valuation of its petroleum based assets from dollars to Euro. If all of the oil producing nation elected to follow the lead of Iraq, Iran and North Korea, the value of the U.S. Dollar could plummet 40%.

At the present the U.S. Dollar is 40% overvalued versus the Japanese Yen or the Chinese Yuan. The uncertainties of the economists of the U.S. at the present are: What if one of these countries would sacrifice its own interests in order to diversify from the U.S. dollar? Presently, the increase in value of the Euro is causing massive unemployment for workers throughout Europe. When the Euro is as strong as it currently is the value of goods produced in Europe by European workers becomes too costly for those outside of Europe. If any of the European Economic Community were to diversify from the Euro, it would cause massive economic collapse. Poland, Portugal and Italy may elect to diversify from the Euro. This diversification would be catastrophic for the Euro and the world's economies. China recently diversified from its usage of the dollar as a measurement tool for the Chinese Yuan, and to tie the Chinese Yuan to a basket of other currencies is part of a growing trend that many nations are diversifying from the use of the dollar.

It is feasible that the Euro may achieve greater market power toward becoming a world reserve currency in light of the events of 2010. Many huge companies in the U.S. Failed or were bought out. Two of the nations largest broker, Bear Sterns and Lehman Brothers failed, Countrywide Financial and Fannie Mae had to be bought out, not to mention the additional expenditures to the Federal Reserve of Washington Mutual and Citigroup. There are 27.4 million unemployed in the U.S., and 20% of all homeowners have lost all of the equity in their home or have gone upside down on their mortgage, which means that the value of the mortgage is greater than the value of the asset. These events in 2010 have spurned the largest monetary expansion in U.S. History. The Federal deficit tripled in size, and the Federal reserve led by Mr. Bernanke doubled its monetary base in just 112 days. The monetary and corporate stimulus engineered by the Federal Reserve represent almost one third of the U.S. Annual Gross domestic product. Holding onto U.S. Dollars and dollar based assets has become a measurement of risk for international investors. China in order to increase the value of its currency has been boosting its gold reserves from 600 metric tons to 1054 metric tons, which represents an increase of 76%. Many nations of the world are searching for a viable alternative to the U.S. Dollar as a world reserve currency.

The resistance point of the Euro is 1.4579. The Euro has reached an all time high of 1.6000. It may be anticipated that there is still room for increase in the value of the Euro and very little in the way of resistance for the Euro to break above 1.4580. A good estimate for the valuation of the Euro for the week of April 21, 2011 would be upwards of 1.4500. Investor confidence has been regained, although many are expecting the Euro to decline in value. The Euro has increased approximately 10% during the first quarter of 2011, assuring the international investment community that the Euro is fully resilient and that the Euro is able to take a licking and keep on ticking. The resiliency of the Euro was tested with the European debt crisis. Consumer confidence in the Euro has been regained and the statistics

that have been included in this research paper demonstrate that the Euro is safe and sound, for the time being. The future and continued stability of the Euro is dependent upon the resolutions reached by the finance ministers of the European Union.

Works Cited

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