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The
Euro
Since
1 January 2002, more than 300 million European
citizens have been using the Euro as a normal
part of daily life. It took only 10 years to
get from the Treaty of Maastricht (February
1992), enshrining the principle of a single
European currency, to the point where Euro notes
and coins were circulating in 12 EU countries.
This is a remarkably short time to carry an
operation through that is unique in world history.
The
Euro has replaced currencies that were, for many
of the countries concerned, centuries-old symbols
and instruments of their national sovereignty.
In doing so, the new currency has moved Europe
considerably closer to economic union. It has
also given EU citizens a much clearer sense of
sharing a common European identity. With Euro
cash in their pockets, people can travel and shop
throughout most of the Union without having to
change money.
How
was the idea of a single European currency born?
As long ago as 1970, the Werner Report, named
after the then Prime Minister of Luxembourg, proposed
a convergence between the economies and currencies
of the six EEC countries. The first step in this
direction was not taken until March 1979 when
the European Monetary System (EMS) was set up.
The EMS was designed to reduce variations in the
exchange rates between the currencies of the member
states. It allowed them fluctuation margins of
between 2.25% and 6%. But its mechanisms were
weakened by a series of crises caused by the instability
of the US dollar and the weakness of some currencies
that became prey to speculators, especially at
times of international tension.
The
need for an area of monetary stability was felt
increasingly as Europe made progress in completing
the single market. The Single European Act, signed
in February 1986, logically implied convergence
between European economies and the need to limit
fluctuations in the exchange rates between their
currencies. How could a single market, based on
the free movement of people, goods and capital,
be expected to work properly if the currencies
involved could be devalued? Devaluing a currency
would give it an unfair competitive advantage
and lead to distortions in trade.
In
June 1989, at the Madrid European Council, Commission
President Jacques Delors put forward a plan and
a timetable for bringing about economic and monetary
union (EMU). This plan was later enshrined in
the Treaty signed at Maastricht in February 1992.
The Treaty laid down a set of criteria to be met
by the member states if they were to qualify for
EMU. These criteria were all about economic and
financial discipline: curbing inflation, cutting
interest rates, reducing budget deficits to a
maximum of 3% of GDP, limiting public borrowing
to a maximum of 60% of GDP and stabilising the
currency’s exchange rate.
In protocols annexed to the Treaty, Denmark and
the United Kingdom reserved the right not to move
to the third stage of EMU (i.e. adoption of the
Euro) even if they met the criteria. This was
called "opting out". Following a referendum,
Denmark announced that it did not intend to adopt
the Euro. Sweden too expressed reservations.
There would have to be some way of ensuring the
stability of the single currency, because inflation
makes the economy less competitive, undermines
people’s confidence and reduces their purchasing
power. So an independent European Central Bank
(ECB) was set up, based in Frankfurt, and given
the task of setting interest rates to maintain
the value of the Euro.
In Amsterdam, in June 1997, the European Council
adopted two important resolutions:
The first, known as the "stability and growth pact",
committed the countries concerned to maintain their budgetary
discipline. They would all keep a watchful eye on one another
and not allow any of them to run up excessive deficits.
The
second resolution was about economic growth. It announced
that the member states and the Commission were firmly committed
to making sure employment remained at the top of the EU’s
agenda.
In
Luxembourg, in December 1997, the European Council adopted a further
resolution on coordinating economic policies. This included the
important decision that "ministers of the States participating
in the Euro area may meet informally among themselves to discuss
issues connected with their shared specific responsibilities for
the single currency". The EU’s political leaders thus
opened the way to even closer ties between countries that adopted
the Euro, ties that went beyond monetary union to embrace financial,
budgetary, social and fiscal policies.
Progress
in achieving EMU has made it easier to open up
and complete the single market. In spite of the
turbulent world situation (with stock market crises,
terrorist attacks and the war in Iraq), the Euro
area has enjoyed the kind of stability and predictability
that investors and consumers need. European citizens’
confidence in the Euro was boosted by the successful
and unexpectedly swift introduction of coins and
banknotes during the first half of 2002. People
appreciate being able to shop around more easily.
They can now directly compare prices in different
European countries.
The
Euro has become the world’s second most
important currency. It is increasingly being used
for international payments and as a reserve currency,
alongside the US dollar. Integration between financial
markets in the Euro area has speeded up, with
mergers taking place not only between stock broking
firms but also between stock exchanges. An EU
action plan for financial services is due to be
implemented by 2005.
The Euro, step by step
7 February 1992: the Treaty
of Maastricht is signed
The Treaty on European Union and Economic
and Monetary Union (EMU) is agreed in Maastricht
in December 1991. It is signed in February
1992 and comes into force in November 1993.
Under this treaty, the national currencies
will be replaced by a single European currency
provided the countries concerned meet a number
of economic conditions. The most important
of the "Maastricht criteria" is
that the country’s budget deficit cannot
exceed 3% of its gross domestic product (GDP)
for more than a short period. Public borrowing
must not exceed 60% of GDP. Prices and interest
rates must also remain stable over a long
period, as must exchange rates between the
currencies concerned.
January 1994: the European
Monetary Institute is set up
The European Monetary Institute (EMI) is set
up and new procedures are introduced for monitoring
EU countries’ economies and encouraging
convergence between them.
June 1997: the Stability
and Growth Pact
The Amsterdam European Council agrees the
"stability and growth pact" and
the new exchange rate mechanism (a re-born
EMS) designed to ensure stable exchange rates
between the Euro and the currencies of EU
countries that remain outside the Euro area.
A design is also agreed for the "European"
side of Euro coins.
May 1998: eleven countries
qualify for the Euro
Meeting in Brussels from 1 to 3 May 1998,
the Union’s political leaders decide
that 11 EU countries meet the requirements
for membership of the Euro area. They announce
the definitive exchange rates between the
participating currencies.
1 January 1999: birth of the Euro
On 1 January 1999, the 11 currencies of the
participating countries disappear and are
replaced by the Euro which thus becomes the
shared currency of Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg,
the Netherlands Portugal and Spain. (Greece
joins them on 1 January 2001). From this point
onwards, the European Central Bank takes over
from the EMI and is responsible for monetary
policy which is defined and implemented in
Euro. Exchange operations in Euro begin on
4 January 1999 at a rate of about €1
to 1.18 US dollars. This is the start of the
transitional period that will last until 31
December 2001.
1 January 2002: Euro coins
and notes are introduced
On 1 January 2002, Euro-denominated notes
and coins are put into circulation. This is
the start of the period during which national
currency notes and coins are withdrawn from
circulation. The period ends on 28 February
2002. Thereafter, only the Euro is a legal
currency in the Euro area countries.