Euro

Euro, monetary unit of 15 European countries, the common currency of the European Union (EU). The Euro consists of 100 cents. At the time of its introduction on January 1, 2002, 1.11 Euros equalled US$1; as at early 2008, 0.68 Euros equalled US$1. The Euro is legal tender in Austria, Belgium, Cyprus (Greek sector), Finland, France, Germany, Greece, Italy, Republic of Ireland, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain. It is also the currency of French overseas territories such as Guadeloupe, French Guiana, Martinique, and St Pierre and Miquelon, as well as Andorra, Monaco, Montenegro, San Marino, Vatican City, and UN-administered Kosovo. Its creation succeeded the European Currency Unit as the common means of exchange in the EU, and marked the culmination of European Economic and Monetary Union (EMU) as envisaged in the Treaty of European Union or Treaty of Maastricht.

The Euro was created on January 1, 1999, and 11 of the then 15 member states of the EU, an area dubbed “Euroland”, irrevocably set the exchange rates between their national currencies and the Euro. As a result, 40.3399 Belgian francs, 1.9558 deutschmarks, 200.482 escudos, 6.5596 French francs, 2.2037 guilders, 1,936.27 lire, 40.3399 Luxembourg francs, 5.9457 markkaa, 166.386 pesetas, 0.7876 punts, and 13.7603 schilling all equalled 1 Euro, and were therefore easily convertible. In January 2001 Greece adopted the Euro at a rate of 340.75 drachmas. Each of these national currencies remained the legal tender of each country until January 1, 2002, when Euro-denominated notes and coins were introduced. A six-week transition period was then commenced before the national currencies ceased to be legal tender. In January 2007, Slovenia, which had become a member of the EU in May 2004, adopted the Euro at a rate of 239 tolar. Cyprus and Malta, who had also become members of the EU in May 2004, became the 14th and 15th countries to make the Euro their national currency when they adopted it in January 2008 at a rate of 0.59 Cyprus pounds and 0.43 Maltese lira respectively.

The Euro comprises 1-, 2-, 5-, 10-, 20-, and 50-cent coins, as well as 1- and 2-Euro coins, and 5-, 10-, 20-, 50-, 100-, 200-, and 500-Euro notes. Each country has its own distinctively designed coins, with national symbols displayed on them; the notes feature the “seven ages of European development” and were designed by Austrian artist Robert Kalina. The notes and coins are issued by the national banks of the member countries, but the currency is managed by the independent European Central Bank (ECB) in Frankfurt am Main, which has the power to set interest rates for the Euro.

The Treaty of European Union signed in Maastricht in 1991 laid out the timetable for the conversion to a single currency within the EU: it was decided in Madrid in 1995 that this single currency would be named the Euro. It laid out five criteria of economic convergence that dealt with levels of annual budget deficit, gross debt, public debt, inflation, and interest rates within the member countries, stipulating that failure to meet these criteria would disqualify the country from joining the Euro. Before eventually adopting the Euro in 2001, Greece was adjudged to have failed in meeting these criteria in the base year of 1997, while Sweden had signalled its intent not to be part of the first wave by not joining the existing Exchange Rate Mechanism. Denmark and the United Kingdom negotiated “opt-out” clauses at Maastricht that they chose to exercise. As a result, these three member states of the EU have maintained their national currencies, and these continue to fluctuate in value with the Euro. Although each of the three may join the currency union later if then eligible, the likelihood of either Denmark or Sweden doing so was drastically reduced when voters rejected membership of the single European currency in referenda in 2000 and 2003 respectively.

On its debut in trading in international currency markets in January 1999, the Euro began by trading strongly against the US dollar and other currencies. Some sliding in value soon after was attributed to attempts by EU politicians to influence the policy of the ECB on interest rates, and the Euro recovered markedly when Oskar Lafontaine, the German finance minister and one of the most vocal of these interventionists, resigned in March 1999. However, by 2000 the Euro had lost about 30 per cent of its value against the US dollar, forcing the intervention of the ECB to boost its value. The damaging effects on the US economy of the terrorist attacks on September 11, 2001, strengthened the Euro as an international currency at the expense of the US dollar. Yet broadly, the value of the Euro depends on the economic performance of the EU as a whole.

The position of the United Kingdom government regarding the replacement of the pound sterling with the Euro is that it currently favours such a move provided key economic tests are met, such as the effect it would have on UK employment, the financial sector, and foreign investment. However, even if these criteria are met any change would most likely be dependent on the outcome of a national referendum.