e money they receive in the future will result in a percentage return that is higher than the inflation rate. Investors consequently demand lower interest rates from countries with greater price stability. This benefit is particularly important for countries with poor inflation-fighting records. These countries now benefit form reduced inflation expectations because of the tight goals and determination of the new European Central Bank. Also, the euro brings lower interest rates by reducing exchange rate risk. The euro encourages structural reform in Europe. Countries wishing to qualify for the euro had to push their economies into shape by meeting the convergence criteria set forth in the Treaty on European Union. The criteria outlined in the treaty are: countries must have a rate consumer price inflation no more than 1.5 percent above that of the three countries in the EU with the lowest such inflation; countries must have a ratio of general government borrowing to GDP no greater than 3.0 percent; countries must have a ratio of gross government debt to GDP no greater than 60 percent; countries must have a nominal interest rate on long-term government bonds no more than two percent above that of the three EU members with the lowest such rate; and countries must be members of the European Monetary System and their currencies must trade within the normal margins of fluctuations of that system. This criteria was created to ensure that any country joining monetary union was fiscally responsible and that participating countries agree to a single monetary policy. In the future, countries that have qualified to be a part of Euroland must adhere to the Stability and Growth Pact, an agreement that strictly limits government borrowing and forces governments to shape up their public finances. The pact also fines countries that borrow too much. “The euro is modernizing European economies, shrinking the size of their welfare stat...
