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Twenty years of the euro


Written by Frédéric Dubessy on Tuesday, January 4th 2022 à 15:45 | Read 390 times



The euro kit sold in 2001 to get the French used to the euro coins (photo: F.Dubessy)
The euro kit sold in 2001 to get the French used to the euro coins (photo: F.Dubessy)
EU. In June 1988, the European Union (EU) decided to set up an Economic and Monetary Union (EMU) based on the principle of the free movement of capital in Europe and the creation of a common monetary authority applying a single monetary policy (the future European Central Bank - ECB - which will be created in 1994).

The major step was the birth of the euro on 1 January 1999, the result of an agreement between eleven of the then fifteen EU countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain). Its name was not decided until December 1995, whereas since 1979 the European Monetary System (EMS) had been using the name ECU to designate this common currency (and not a single currency, since it was a basket of values bringing together the currencies of the EU countries and therefore only an accounting unit). The ECU was also included in the famous Maastricht Treaty as a term for the future common currency.

However, it was not until 1 January 2002 that 300 million Europeans in 15 countries physically exchanged francs, lira, pesetas, escudos, drachmas, Deutsche Marks, Schillings, guilders, pounds, crowns, lats, litas and tolars for the euro in their daily lives. To achieve this feat, the ECB printed some 15 billion euro banknotes (common to all) and the countries minted some 52 billion coins (one side common and one national).

​The euro accounts for 21% of global foreign exchange reserves

Twenty years on, the inhabitants of 19 of the 27 Member States of the European Union have this common currency. The latest to adopt it was Lithuania on 1 January 2015. There are also the non-EU members Andorra, Monaco, San Marino and the Vatican City, which use the euro in their own colours thanks to a formal agreement with the EU. But also Montenegrins and Kosovars use this currency without any monetary agreement.

All in all, there are more than 340 million euro wallets. This number could grow further in the coming years, as all Member States - with the exception of Denmark, which has signed an opt-out clause and will keep its krone - are expected to join the euro area. Croatia, Hungary, Romania, Bulgaria, the Czech Republic, Poland and Sweden will therefore convert their respective Kuna, Forint, Leu, Lev, Czech Crown, Zloty and Swedish Crown into the common currency.

In 2021, 60% of goods exports from the European area were denominated in euros and this common currency represents more than 21% of the world's foreign exchange reserves. This makes it the second most important currency in the international monetary system after the dollar (59% of world foreign exchange reserves).

Almost 30 billion euro banknotes in circulation

From 2013 to 2019, a new series of banknotes called "Europe", "more secure and more resistant to wear and tear", according to the ECB, has gradually replaced all the euro banknotes. With the exception of the €500 note, which remains in use but will not be renewed. It has not been reprinted since 2014 (26 April 2019 for the exception of the Bank of Austria) and will therefore disappear. Just like the 1 and 2 cent coins, whose production is in deficit, as the European Commission noted in 2018, specifying that "the acquisition costs alone already exceed the face value of the coin".

France, which has held the rotating presidency of the Council of the European Union for six months since 1 January 2022, has put into circulation two coins (1 and 2 euros) symbolising this anniversary.

Today, at the end of November 2021, according to figures published by the ECB, 27.64 billion banknotes (of which 48.6% were €50, 16.4% €20, 13.1% €100, 10.2% €10, 7.3% €5, 3.1% €200 and 1, 4% €500) and 140.88 billion coins (27.0% 1 cent, 21% 2 cent, 16.3% 5 cent, 11.5% 10 cent, 9% 20 cent, 5.5% €1, 4.9% €2 and 4.8% 50 cent) circulate worldwide. With a value of €1,519.3 billion and €31.15 billion respectively.

​No price surge because of the euro

Twenty years of the euro
These two decades have not been a smooth ride for the euro. The financial crisis of 2008 to 2010 and its attendant public deficits almost caused the eurozone to explode during its ten years of unnoticed existence. In order to reassure the financial markets, the exit of several countries, notably Greece, was mentioned. But this was abandoned.
The virtue of a single currency, after a revision of the EMS, made it possible to save the economy. The economic consequences of the arrival of the Covid-19 were also cushioned by the supportive monetary policies made possible by the existence of the ECB and the SURE financial assistance programme as well as the Next Generation EU recovery. According to Paschal Donohoe, President of the Eurogroup, "the euro has a proven track record in addressing major economic challenges. In particular, our response to the Covid-19 pandemic has shown that by having the euro as a common currency, we are much stronger collectively than we are individually."

As Charles Michel, President of the European Council, recalled on Monday 3 January 2022, "Despite the crises, the euro has proved resilient - a symbol of European unity and stability. And this has never been more true than during the COVID-19 pandemic. The euro has been the bedrock of stability. It is a stable asset for the Union. The euro is also fuelling our recovery. It unleashes the full potential of sustainable development, quality jobs and innovation".  Christine Lagarde, president of the European Central Bank, said: "The euros we have in our wallets have become an example of stability and soundness around the world."

In a joint statement issued on 31 December 2021, the finance ministers of all eurozone countries noted that "these early crises have allowed the euro to mature and strengthen its international role. We have also learned valuable lessons that have proved useful in the current pandemic: its cross-border nature has highlighted both the importance of our interdependence and the strength of our unity.

Criticism also remains over the changeover from the franc to the euro, which is said to have caused prices to soar. According to a study by INSEE (Institut national de la statistique et des études économiques) in May 2017 for the fifteen years of the euro, consumer prices rose by an average of 1.4% per year from 2002 to 2016 (see table below). In the previous fifteen years (1986 to 2001), they had risen by 2.1%. "In this historical perspective, inflation in the years following the shock of the changeover to the euro on 1 January 2002 was not atypical. The conversion of franc prices into euros certainly led to an increase in prices, in particular via the switch to new psychological price scales in euros. But the evaluations carried out on the basis of microeconomic price data concluded that the impact of the changeover to the euro was moderate, in the order of +0.1% to +0.2% on prices", the Institute continued. The survey even stated that "this increase in prices since 2002 is close to the inflation measured on average in the euro zone", i.e. 1.7% on average per year.
Twenty years of sound and fury

The euro can do a lot

"Building on the extension of the single market, the euro has become one of the most tangible achievements of European integration, on a par with the free movement of people, the Erasmus student exchange programme or the abolition of roaming charges within the EU," the eurozone finance ministers congratulated themselves in the above-mentioned text.

However, they remain clear-sighted about the future of the single currency and list the challenges for the next twenty years. The roadmap includes promoting the "international role of the euro", adapting it to the digital age, strengthening the euro area to "open up new opportunities for economic recovery and growth" and consolidating capital markets. "We must take decisive action to improve the ways in which private investment and savings flow into the single market to provide much-needed finance to businesses, including our SMEs, and thereby create new employment opportunities.

The signatories of this communiqué believe that "investment levels have been too low for too long: we need to invest massively and sustainably in our people, our infrastructure and our institutions. Combined with responsible fiscal policies and the contribution of the private sector, the Next Generation EU instrument will play a vital role in delivering many of the necessary reforms and investments. It is the best way for us to boost our growth potential, improve our living standards and address the critical challenges facing humanity.

They also want to "ensure the sustainability of public finances in the context of an ageing population. In the context of the review of our common budgetary rules, we need to ensure that the euro area's fiscal and economic policies are fit for purpose in a changing environment and can meet future challenges.



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