A SUPPLEMENT TO EUROMONEY Ecu From Basket to Core Currency The Ecu has played a central role in the history of European integration and the drive towards a single currency. The Ecu was initially defined in 1978 as an open (revisable) basket. Its external value was determined by the EEC currencies, weighted on the basis of the relative importance of each national economy. The composition of the basket was revised twice: in 1984 when the Greek drachma was included and in September 1989 with the inclusion of the Spanish peseta and the Portuguese escudo. In its present definition the Ecu is a closed basket made up of twelve of the fifteen EU currencies. Since the first Ecu bond was issued in 1981 the Ecu bond market has seen times of prosperity but also of gloom. European optimism in the early 1990s was defeated by the ERM crises in the summers of 1992 and 1993. Despite recent enthusiasm, even last year confidence in Emu was running low. In the bond market, spreads of Ecu benchmark bonds widened to their theoretical yields towards the end of 1995. Similarly, in the foreign exchange market the value of the private Ecu to the basket, as measured by the Ecu parity divergence, fell sharply, as can be seen in graph 1. |