History of the euro

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v t e

The euro came into existence on 1 January 1999, although it had been a goal of the European Union (EU) and its predecessors since the 1960s. After tough negotiations, particularly due to opposition from the United Kingdom, the Maastricht Treaty entered into force in 1993 with the goal of creating an economic and monetary union by 1999 for all EU states except the UK and Denmark (even though Denmark has a fixed exchange rate policy with the euro). In 1999 the currency was born virtually and in 2002 notes and coins began to circulate. It rapidly took over from the former national currencies and slowly expanded behind the rest of the EU. In 2009 the Lisbon Treaty finalised its political authority, the Eurogroup, alongside the European Central Bank.

Contents

1 Development o 1.1 Early ideas o 1.2 Relaunch o 1.3 Second stage 2 Creation o 2.1 Launch o 2.2 Minting o 2.3 Change of currency o 2.4 Aftermath o 2.5 Early growth 3 Late 2000s enlargements o 3.1 Slovenia o 3.2 Cyprus o 3.3 Malta o 3.4 Slovakia 4 Recession era o 4.1 Reform o 4.2 Estonia and Latvia 5 See also 6 Notes 7 References 8 External links

Development
Early ideas

Pierre Werner's report began the first moves towards monetary union First ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. For example, already in the League of Nations, Gustav Stresemann asked in 1929 for a European currency[1] against the background of an increased economic division due to a number of new nation states in Europe after World War I. At this time memories of the Latin Monetary Union[2] involving principally France, Italy, Belgium and Switzerland and which, for practical purposes, had disintegrated following the First World War, will have figured prominently in the minds of policy makers. A first attempt to create an economic and monetary union between the members of the European Economic Community goes back to an initiative by the European Commission in 1969, which set out the need for "greater co-ordination of economic policies and monetary cooperation."[3] This was followed up at a meeting of the European Council at The Hague in December 1969. The European Council tasked Pierre Werner, Prime Minister of Luxembourg, with finding a way to reduce currency exchange rate volatility. His report was published in October 1970 and recommended centralisation of the national macroeconomic policies entailing "the total and irreversible fixing of parity rates and the complete liberation of movements of capital." But he did not propose a single currency or central bank.[4] An attempt to limit the fluctuations of European currencies, using a snake in the tunnel, failed. In 1971, US President Richard Nixon removed the gold backing from the US$, causing a collapse in the Bretton Woods system that managed to affect all of the world's major currencies. The widespread currency floats and devaluations set back aspirations for European monetary union.[4] However in March 1979 the European Monetary System (EMS) was created, fixing exchange rates onto the European Currency Unit (ECU), an accounting currency, to stabilise exchange rates and counter inflation. It also created the European Monetary Cooperation Fund (EMCF).[4] In February 1986 the Single European Act formalised political co-operation within the Community including competency in monetary policy.[4] European Council summit in Hannover on 14 June 1988 began to outline monetary co-operation. France, Italy and European

Commission backed a fully monetary union with a central bank, which British Prime Minister Margaret Thatcher opposed.[5]

Relaunch
President Delors' three-point plan laid out the path to EMU The Hannover European Council asked Commission President Jacques Delors to chair an ad hoc committee of central bank governors to propose a new timetable with clear, practical and realistic steps for creating an economic and monetary union.[6] This way of working was derived from the Spaak method. France and the UK were opposed to German reunification, and attempted to influence the Soviet Union to stop it.[7] However, in late 1989 France extracted German commitment to the Monetary Union in return for support for German reunification.[8] The Delors report[9] of 1989 set out a plan to introduce the EMU in three stages and it included the creation of institutions such as the European System of Central Banks (ESCB), which would become responsible for formulating and implementing monetary policy. It laid out monetary union being accomplished in three steps. Beginning the first of these steps, on 1 July 1990, exchange controls were abolished, thus capital movements were completely liberalised in the European Economic Community. Leaders reached agreement on currency union with the Maastricht Treaty, signed on 7 February 1992. It agreed to create a single currency, although without the participation of the United Kingdom, by January 1999.[4] Gaining approval for the treaty was a challenge. Germany was cautious about giving up its stable currency, i.e. the German Mark,[10] France approved the treaty by a narrow margin[11] and Denmark refused to ratify until they got an opt out from monetary union as the United Kingdom, an opt-out which they maintain as of 2011.[12] On 16 September 1992, known in the UK as Black Wednesday, the British pound sterling was forced to withdraw from the fixed exchange rate system due to a rapid fall in the value of the pound.[13]

Second stage

Wim Duisenberg was the first President of the European Central Bank Delors' second stage began in 1994 with creation of the European Monetary Institute, succeeding the EMCF, under Maastricht. It was created as the forerunner to the European Central Bank. It met for the first time on 12 January under its first president, Alexandre Lamfalussy.[4] After much disagreement, in December 1995 the name euro was adopted for the new currency (replacing the name Ecu used for the previous accounting currency),[4] on the suggestion of thenGerman finance minister Theo Waigel. They also agreed on the date 1 January 1999 for its launch.[4] On 17 June 1997 the European Council decided in Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the euro, and a new exchange rate mechanism (ERM II) was set up to provide stability above the euro and the national currencies of countries that hadn't yet entered the eurozone. Then, on 3 May 1998, at the European Council in Brussels, the 11 initial countries that would participate in the third stage from 1 January 1999 were selected. To participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, low inflation, and interest rates close to the EU average. Greece failed to meet the criteria and was excluded from participating on 1 January 1999. On 1 June 1998 the European Central Bank succeeded the European Monetary Institute. However it wouldn't take on its full powers until the euro was created on 1 January 1999. The bank's first President was Wim Duisenberg, former head of the EMI and the Dutch central bank.[4] The conversion rates between the 11 participating national currencies and the euro were then established. The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998, so that one ECU would equal one euro. These rates were set by Council Regulation 2866/98 (EC), of 31 December 1998. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day. Due to differences in national conventions for rounding and significant digits, all conversion

between the national currencies had to be carried out using the process of triangulation via the euro.

Creation
Launch

Eurozone, 19992002 The currency was introduced in non-physical form (traveller's cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002 (having been distributed in small amounts in the previous December). Beginning on 1 January 1999, all bonds and other forms of government debt by Eurozone nations were denominated in euros. On the first day of trading, 5 January, since its launch, the euro climbed to 1.19 US$. It was rapidly taken up and dealers were surprised by the speed at which it replaced the national currencies. Trading in the Deutsche Mark was expected to continue in parallel but vanished as soon as the markets opened.[14] However, by the end of 1999 the euro had dropped to parity with the dollar[4] leading to emergency action from the G7 to support the euro in 2001.[15] Later in 2000, Denmark held a referendum on whether to abandon their opt-out from the euro. The referendum resulted in a decision to retain the krone, and also set back plans for a referendum in the UK as a result.[16] The procedure used to fix the irrevocable conversion rate of 340.750 between the Greek drachma and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced as a virtual currency, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC),[17] of 19 June 2000.

Minting

The designs for the new coins and notes were announced between 1996 and 1998, and production began at the various mints and printers on 11 May 1998. [18] The task was large, and would require the full three years and a half. In all, 7.4 billion notes and 38.2 billion coins would be available for issuance to consumers and businesses on 1 January 2002.[19] In 7 nations, the new coins, struck in the run-up to 1 January 2002, would bear a 2002 date. In Belgium, Finland, France, the Netherlands, and Spain, the new coins would bear the date of striking, so those 5 countries would be the only ones to strike euro coins dated 1999, 2000, and 2001. Small numbers of coins from Monaco, Vatican City, and San Marino were also struck. These immediately became popular collector's items, commanding premiums well above face value. New issues continue to do so to this day. Meanwhile, a parallel task was to educate the European public about the new coins. Posters were issued showing the designs, which were used on items ranging from playing cards to T shirts. As a final step, on 15 December 2001, banks began exchanging "euro starter kits", plastic pouches with a selection of the new coins in each country (generally, between 10 and 20 euros worth though Finland's contained one of each coin, totalling 3.88). They would not be usable in commerce until 1 January, when notes would be made available as well. Larger starter kits, containing a roll of each denomination, were available as well in some nations. Retailers and government agencies had a considerable task as well. For items to be sold to the public, dual pricing was commonly utilised. Postage stamps for governments (as well as stamps issued by the United Nations Postal Administration for the UN offices in Vienna) often bore denominations both in the legacy currency and euros, assuring continued utility beyond 2001. Banks bore a huge task, not only in preparation for the change of the notes and coins, but also in the back office. Beginning in 1999, all deposits and loans were technically in euros, but deposits and withdrawals continued in the legacy currency. Statements would bear balances in both currencies beginning no later than 1 July 2001, and earlier if required by the customer's needs. Beginning on 1 December 2001, coins and notes were distributed from secure storage, first to large retailers, and then to smaller ones. It was widely expected that there would be massive problems on and after 1 January. Such a changeover, across twelve populous countries, had never been attempted before.

Change of currency

Euro banknotes and coins of various denominations.

The new coins and notes were first valid on the French island of Runion in the Indian Ocean.[20] The first official purchase using euro coins and notes took place there, for one kilogram of lychees.[21] The coming of midnight in Frankfurt at the ECB offices, though, symbolised the transition. In Finland, the Central Bank had opened for an hour at midnight to allow citizens to exchange currency, while a huge euro pyramid had decorated Syntagma Square in Athens. Other countries noted the coming of the euro as wellParis's Pont Neuf was decorated in EU colours, while in the northern German town of Gifhorn a sombre, symbolic funeral for the Deutsche Mark took place. Except for Germany, the plan for introduction of the new currency was basically the same. Banks would accept the exchange of legacy currencies, begin to dispense euros from ATMs, and only euros would be available as withdrawals were made, beginning on 1 January. Merchants would accept legacy currency, but give change only in euros. In Germany, the Deutsche Mark would no longer be a legal tender on 1 January, but would have to be exchanged at the banks. Despite the massive amounts of euros available, chaos was feared. In France, these fears were accentuated by a threatened postal workers' strike.[22] The strike, however, was settled. Similarly, workers at the French bank BNP Paribas threatened to disrupt the introduction of euro currency with a strike. That was also settled.[23]

v t e Preceding national currencies of the Eurozone Currency Austrian schilling Belgian franc Cypriot pound German mark Estonian kroon Spanish peseta Finnish markka Code Rate[24] (ISO 4217)
ATS BEF CYP DEM EEK ESP FIM

Fixed on

Yielded

13.7603 1998-12-31 1999-01-01 40.3399 1998-12-31 1999-01-01 0.585274 2007-07-10 2008-01-01 1.95583 1998-12-31 1999-01-01 15.6466 2010-07-13 2011-01-01 166.386 1998-12-31 1999-01-01 5.94573 1998-12-31 1999-01-01

Preceding national currencies of the Eurozone Currency French franc Greek drachma Irish pound Italian lira Luxembourgish franc Latvian lats Monegasque franc Maltese lira Dutch guilder Portuguese escudo Slovenian tolar Slovak koruna Sammarinese lira Vatican lira Code Rate[24] (ISO 4217)
FRF GRD IEP ITL LUF LVL MCF MTL NLG PTE SIT SKK SML VAL

Fixed on

Yielded

6.55957 1998-12-31 1999-01-01 340.75 2000-06-19 2001-01-01 0.787564 1998-12-31 1999-01-01 1,936.27 1998-12-31 1999-01-01 40.3399 1998-12-31 1999-01-01 0.702804 2013-07-09 2014-01-01 6.55957 1998-12-31 1999-01-01 0.4293 2007-07-10 2008-01-01 2.20371 1998-12-31 1999-01-01 200.482 1998-12-31 1999-01-01 239.64 2006-07-11 2007-01-01 30.126 2008-07-08 2009-01-01 1,936.27 1998-12-31 1999-01-01 1,936.27 1998-12-31 1999-01-01

In practice, the roll-out was smooth, with few problems. By 2 January, all ATMs in 7 countries and at least 90 percent in 4 others were issuing euros rather than legacy currency, with Italy, the worst offender, having 85% of ATMs dispensing euros.[25] The unexpected tendency of consumers to spend their legacy currency, rather than exchange it at banks, led to temporary shortages of euro small change, with some consumers being given change in legacy currency.[26] Some businesses did take advantage of the currency exchange to raise prices. According to a study by the Deutsche Bundesbank, there was a price rise, but consumers refused to buy as much. A coffee bar in Italy that took advantage of the transition to raise coffee prices by a third was ordered to pay compensation to customers.[27]

Aftermath
Nations were allowed to keep legacy currency in circulation as legal tender for two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany; the Mark officially ceased to be legal tender after 31 December 2001. Most member states, though, permitted their legacy currency to remain in circulation the full two months. The legacy currency was exchangeable at commercial banks in the currency's nation for a further period, generally until 30 June 2002. However, even after the official dates, they continued to be accepted for exchange by national central banks for varying periodsand indefinitely in Austria, Germany, Ireland, and Spain. Coins from those four countries, Italy, and Finland remain exchangeable. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022. All banknotes current on 1 January 2002 will remain valid until at least 2012.[28] Efforts to secure the return of German coins continue.[citation needed] In 2005, Deutsche Telekom modified 50,000 pay phones to take Deutsche Mark coins, at least on a temporary basis.[29] Callers were allowed to use DM coins, at least initially, with the Mark pegged to equal one euro, almost twice the usual rate.[30] In France, receipts still indicate the value of products in the legacy currency along with the euro value, as do receipts in Slovenia. In other eurozone countries this has long been considered unnecessary. In June 2008, The New York Times reported that many merchants in the French town of Collobrires, in Provence, choose to accept exchangeable franc notes.[31]

Euro usage in the world (blue and purple, click for detail).

Early growth
Further information: International status and usage of the euro After dropping to an interday low of $0.8296 on 26 October 2001, and a brief crash to $0.8115 on 15 January 2002, the euro soon recovered from its early slump. Its value last closed below $1.00 on 6 November 2002 ($0.9971), and increased rapidly from there. It peaked at $1.35 in 2004, and reached its highest value versus the U.S. dollar at $1.5916 on 14 July 2008.[32] As its values increased against the pound sterling in the late-2000s, peaking at 97.73p on 31 December 2008, its international usage grew rapidly.[33] The euro grew in importance steadily, with its

share of foreign exchange reserves rising from nearly 18% in 1999 to 25% in 2003 - while the dollar share fell by an equivalent margin.[34] Alan Greenspan in 2007 said the eurozone had profited from the euro's rise and claimed it was perfectly conceivable that it could trade equally or become more important than the US dollar in the future.[35]

Late 2000s enlargements

Eurozone (2011) Between 2007 and 2009, several states from the 2004 enlargement acceded to the eurozone. These were Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011 and Latvia in 2014. Most other 2004 countries faced greater difficulties in fulfilling the criteria to join.

Slovenia
Slovenia was the first country to join the eurozone after the launch of the coins and banknotes. Participation in ERM II began on 28 June 2004[36] and on 11 July 2006 the Council of EU adopted a decision allowing Slovenia to join the euro area as from 1 January 2007.[37] The euro replaced the Slovenian tolar on 1 January 2007. The exchange rate between the euro and tolar had been set on 11 July 2006 at 239.640 SIT, but unlike the previous launches, cash and noncash transactions were introduced simultaneously.

Cyprus
Cyprus replaced the Cypriot pound with the euro on 1 January 2008.[38] A formal letter of application to join the eurozone was submitted on 13 February 2007.[39] On 16 May 2007 the European Commission, backed by the European Central Bank, gave its go-ahead for the introduction in January 2008.[40][41]

The campaign to inform the citizens of Cyprus about the euro officially began in Cypriot media on 9 March 2007. On 15 March 2007, the Cypriot House of Representatives passed the necessary laws for the introduction of the euro on 1 January 2008. The European Commissioner for Economic & Financial Affairs Joaqun Almunia, on 16 May 2007, recommended that Cyprus adopt the euro as scheduled and the European Parliament concurred on 21 June 2007, the date was confirmed by the EU leaders. The final decision was taken by the EU finance ministers (Ecofin) on 10 July 2007 and the conversion rate was fixed at 0.585274 CYP.[42] On 23 October 2007, the coin designs were officially published in the Official Journal of the European Union.[43] On 1 January 2008 the euro replaced the Cypriot pound as the official currency.[44] The euro is only used in the government-controlled areas of the Republic, the Sovereign Base Areas of Akrotiri and Dhekelia (under UK jurisdiction, outside the EU) and in the United Nations Buffer Zone in Cyprus.[45] The de facto Turkish Republic of Northern Cyprus continues to use the new Turkish lira as its primary currency and the euro as its secondary currency.[46]

Malta

Valletta covered with floor designs of their new euro coins Malta replaced the Maltese lira with the euro on 1 January 2008.[38] The aims were officially confirmed on 26 February 2007.[47] On 16 May 2007, the Commissioner for Economic & Financial Affairs of the EU, Joaqun Almunia, recommended that Malta adopt the euro as scheduled, a decision later confirmed by the Council of Finance Ministers of 10 July 2007. On the same day, dual displaying became mandatory and the first Maltese euro coins were struck at Monnaie de Paris. The first Maltese euro coins were available for the public on 1 December 2007, as business starter packs worth 131 each started being available for small businesses to fill up their cash registers with sufficient amount of euro coins before the -day (Jum ). Minikits each worth 11.65 were available for the general public on 10 December 2007.[48] Maltese coins which were current at the time of the euro transition may be exchanged through 1 February 2010.[28] Maltese citizens could obtain euro information directly from their town or village between December 2007 and January 2008. From the Euro Centres (entru l-ewro) which opened during the day. People trained specifically on matters related to the changeover to the euro were available to provide council at euro centres along with information materials.[49] In December 2007, as part of the euro changeover celebrations, streets of Valletta were covered with carpets depicting euro coins. Celebrations reached climax on New Year's Eve with a

firework display near the Grand Harbour area, several other activities had to be moved indoors because of the stormy weather that struck the island on that night.

Slovakia

Slovak euro coins starting set Slovakia adopted the euro on 1 January 2009. The koruna was part of ERM II from 28 November 2005, requiring that it trade within 15% of an agreed central rate; this rate was changed on 17 March 2007 and again on 28 May 2008. The rate of 30.126 SKK from May 2008 was finally confirmed on 8 July 2008.[50] To assist the process of conversion to the euro, on 1 April 2008, the National Bank of Slovakia (NBS) announced their plan for withdrawal of the Slovak koruna notes and coins.[51] A few days later, on 5 April 2008, Slovakia officially applied to enter the eurozone.[52] On 7 May 2008, the European Commission approved the application and asked member states to endorse the bid during the EU finance ministers' meeting in July 2008.[53][54][55] Slovakia fulfilled the euro convergence criteria. At 2.2%, Slovakia's twelve-month inflation was well below the 3.2% threshold. However, for March 2008 annual inflation was 3.6%. Fiscal deficit was 2.2% versus the reference value of 3.0%. And finally, the government debt ratio was 29.4% of GDP in 2007, well below the maximum ratio of 60.0%.[56] Public opinion supported the switch, with 58% in favour and 35% opposed, but 65% worried about the inflationary impacts of the adoption.[57] Three months after the adoption of the currency 83 percent of Slovaks consider Slovakia's decision to adopt the euro to have been right.[58] Publicity for the transition from the koruna to the euro on 1 January 2009 included an "euromobile", with a professional actor driving around the countryside holding impromptu quiz shows about the euro. Winners received euro T shirts, euro conversion calculators, and chocolate euro coins.[59] Euro starter kits, available for 500 koruna, were a popular Christmas gift in 2008. The coins therein, however, were not valid as legal tender in the Eurozone until 1 January 2009, with koruna exchanged through 17 January 2009, though redeemable at the central bank in Bratislava until a date to be determined. Anyone using Slovakian euro coins before 1 January could have been fined. Businesses using the transition to raise prices also were subject to penalty.[59]

Recession era

The Lisbon Treaty formalised Jean-Claude Juncker's post as President of the Eurogroup As a result of the global financial crisis that began in 2007/2008, the eurozone entered its first official recession in the third quarter of 2008, official figures confirmed in January 2009.[60] The EU was in negative growth for the second, third and fourth quarters of 2008 and the first quarter of 2009 before returning to positive growth (for the Eurozone as a whole).[61] Despite the recession, Estonia acceded to the Eurozone and Iceland put in an EU application to join the euro, seeing it at the time as a safe haven.

Reform
In 2009, the Lisbon Treaty formalised the Eurogroup, the meeting of euro finance ministers, with an official president. Jean-Claude Juncker served as president before and after formalisation and has been an advocate of strengthening the group, economic co-operation and common representation. Appetite for stronger economic co-operation grew due to the recession and the potential failure of some weaker eurozone members.[62] However Germany had opposed previous moves to strengthen the Eurogroup, such as French President Nicolas Sarkozy's attempts at Eurogroup summits, due to fears of undermining the ECB's independence. Jean-Claude Trichet, who succeeded Duisenberg as ECB president in 2003, fended off numerous attacks from Sarkozy at the start of the recession. Before that formalisation of the Eurogroup, Eurozone leaders held an extraordinary summit in reaction to the financial crisis on 11 October 2008 in Paris. Rather than the Eurogroup meeting as finance ministers, they met as head of states or government (similar to the European Council) to define a joint action plan for the eurozone and the European Central Bank to stabilise the European economy. These such meetings would be where many euro governance reforms would be agreed. The leaders hammered out a plan to confront the financial crisis which will involve hundreds of billions of euros of new initiatives to head off a feared meltdown. They agreed a bank rescue

plan: governments would buy into banks to boost their finances and guarantee interbank lending. Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems.[citation needed] Despite initial fears by speculators in early 2009 that the stress of such a large recession could lead to the break-up of the eurozone, the euro's position actually strengthened as the year progressed. Far from the poorer performing economies moving further away and becoming a default risk, bond yield spreads between Germany and the weakest economies decreased easing the strain on these economies. Much of the credit for the turn around in fortunes has been attributed to the ECB, which injected 500bn into the banks in June.[63] Indeed the euro became to be seen as a safe haven, as countries outside it such as Iceland fared worse than those with the euro. Iceland subsequently applied to the EU to get the benefit of using a larger currency with the support of the ECB.[64] However with the risk of a default in Greece and other members in late 200910, eurozone leaders agreed to agree provisions for bailing out member states who could not raise funds (triggered for Greece in April 2010).[65][66] This was a u-turn on the EU treaties which rule out any bail out of a euro member to encourage them to manage their finances better. Yet with Greece struggling to restore its finances, other member states also at risk and the repercussions this would have on the rest of the eurozone economy;[67] a temporary bail out mechanism was agreed and devised in the form of a special purpose vehicle (SPV) named "European Financial Stability Facility" (complemented by the European Financial Stabilisation Mechanism and funds form the International Monetary Fund), aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. The crisis also spurred consensus for further economic integration and a range of proposals such as a "European Monetary Fund" or federal treasury.[68][69][70] However, in June 2010, broad agreement was finally reached on a controversial proposal for member states to peer review each other's budgets prior to their presentation to national parliaments. Although showing the entire budget to each other was opposed by Germany, Sweden and the UK, each government would present to their peers and the Commission their estimates for growth, inflation, revenue and expenditure levels six months before they go to national parliaments. If a country was to run a deficit, they would have to justify it to the rest of the EU while countries with a debt more than 60% of GDP would face greater scrutiny.[71] The plans would apply to all EU members, not just the eurozone, and have to be approved by EU leaders along with proposals for states to face sanctions before they reach the 3% limit in the Stability and Growth Pact. Poland has criticised the idea of withholding regional funding for those who break the deficit limits, as that would only impact the poorer states.[71] In June 2010 France agreed to back Germany's plan for suspending the voting rights of members who breach the rules.[72] In late 2010/early 2011 it was agreed to replace the European Financial Stability Facility and European Financial Stability Mechanism with a larger and permanent European Stability Mechanism (ESM). The ESM required a treaty amendment to allow it and a separate treaty to establish it but, if ratified successfully, would be established in time to take over when the old

facilities expire in 2013. Meanwhile, to support Italy and prevent it having to ask for a bail-out later, the ECB controversially started buying Italian bonds, as it had done with Greece. In March 2011 was initiated a new reform of the Stability and Growth Pact aiming at straightening the rules by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules.[73][74] The Euro Plus Pact sets out a wide range of reforms to take place in the Eurozone to ensure and the French and German governments further agreed to push for a 'true economic government' that would involve twice-yearly eurozone leader summits and a financial transactions tax.[75] The European Fiscal Union is a proposal for a treaty about fiscal integration described in a decision adopted on 9 December 2011 by the European Council. The participants are the Eurozone member states and all other EU members without the United Kingdom and the Czech Republic. Treaty text is still to be drafted and participation approvals from national parliaments are still to be granted.[76]

Estonia and Latvia

Despite speculation that the crisis in Greece could spread and that the euro might fail, some newer EU states have joined the currency. In 2010 Estonia gained the support of the European Commission, Central Bank and Parliament for accession on 1 January 2011 with Estonia adopting the currency on that date.[77][78] In 2013 Latvia gained the support of the European Commission, Central Bank and Parliament for accession on 1 January 2014 with Latvia adopting the currency on that date.[79][80]

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This article is about the currency of the the European Union. For the company with stock ticker EURO, see EuroTrust A/S (EURO). The Euro (also known as the Anti-Dollar[1]) is the official currency of 23 countries in the European Union, collectively known as the Eurozone. It is also the sole currency in 9 other European countries. Currently, it is the currency with the highest combined value of cash in circulation in the world, and the second most traded currency in the foreign exchange market behind the American dollar. It is denoted with a leading . For example, 75 is read "Seventyfive Euros". The chart at left shows the EUR/USD Currency Pair; the number of U.S. Dollar (USD) equivalent to 1 Euro.

Economic History
The Euro traces its beginnings to the The Maastricht Treaty in 1992 in which the EU nations agreed to form a monetary and economic union. In order to participate in the common currency, members were required to meet certain budgetary (such as capping the budget deficit at 3% of GDP) and economic (e.g. maintaining an inflation rate close to the the EU average) conditions. In addition, member countries were required to peg their currencies to each other for a certain period prior to the launch. Not all EU members were able to adhere to these conditions and the Euro launched as an accounting currency in 1999 with 11 countries. Three years later, Euro denominated notes and coins started circulating on January 1, 2002.

Contents

1 Economic History o 1.1 Euro Membership o 1.2 Notable EU Exceptions 2 Factors affecting the Value of the Euro o 2.1 Central Bank Policy and Interest rates o 2.2 Balance of Trade o 2.3 Inflation o 2.4 Status as Reserve Currency 3 Investing in the Euro o 3.1 Companies that benefit from a stronger euro o 3.2 Companies that benefit from a weaker euro 4 Forex Trading[1] o 4.1 Trading Hours o 4.2 Things to know when Trading the Euro 5 Euro Economy[1] o 5.1 General Economic Statistics o 5.2 Market Moving Economic Releases 6 References

Currently the Euro is the official currency of sixteen member states of the European Union, including Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. They are collectively known as the Eurozone The currency is also used in 5 other countries through official agreement, including Mayotte, Monaco, San Marino, Saint Pierre and Miquelon, and Vatican City. Finally, 6 other countries have also adopted the Euro but do not have an official agreement with the European Union. These countries are Akrotiri and Dhekelia, Andorra, Kosovo, Montenegro, Saint Barthlemy, and Saint Martin.

Euro Membership
Current Euro members are listed here in alphabetical order.

Austria (1999) Oesterreichische Nationalbank (OeNB) Belgium (1999) National Bank of Belgium Cyprus (2008) National Bank of Cyprus Finland (1999) Bank of Finland France (1999) Banque de France Germany (1999) Deutsche Bundebank Greece (2006) Bank of Greece Ireland (1999) Central Bank of Ireland Italy (1999) Banca d'Italy Luxembourg (1999) Banque de Luxembourg Malta (2008) Central Bank of Malta Netherlands (1999) De Nederlandsche Bank Portugal (1999) Banco de Portugal Slovakia (2009) Nrodn banka Slovenska Slovenia (2007) Banka Slovenije Spain (1999) Banco de Espana

Notable EU Exceptions
Several European nations do not use the Euro as their currency, despite membership in the EU. Notable example include:

The United Kingdom, which uses the Pound Sterling (). Denmark, which uses a national version of the Krone. Sweden, which uses the Swedish Krona (SEK). Norway is not a member of the EU and uses a national version of the Krone. Switzerland is not a member of the EU and uses the Swiss Franc (CHF).

Factors affecting the Value of the Euro

Error creating thumbnail Eurozone balance of trade[2]

Inflation in Europe.[3] The Euro is a floating currency, which means that the value of the euro is not "pegged" to any other currency. Therefore, the value of the Euro is determined by the demand and supply of the currency.

Central Bank Policy and Interest rates

The supply of Euro is regulated by the European Central Bank (ECB). The ECB is responsible for managing the monetary policy of the Eurozone. The ECB has the exclusive right to set interest rates for the Eurozone. The primary objective of the ECB is "to maintain price stability" within the Eurozone -- in other words, to keep inflation low. The present inflation target is at or around 2%.[4] The ECB does not directly manage exchange rates of the Euro. However, interest rates affect the demand for a currency. At high interest rates, the currency becomes more valuable as it offers a return on investment for investors. Therefore, demand for the Euro, in part, is determined by the relative interest rates in Europe compared to other parts of the developed world. The fact that the Euro is the currency of 15 different nations means that the national governments cannot manipulate the currency to suit its needs. Unlike mauritius , European governments can not devalue the currency to help the export sector. <SCRIPT language='JavaScript1.1' SRC="http://ad.doubleclick.net/adj/N2992.149951.WIKINVEST/B7967109;abr=!ie;sz=300x250 ;ord=[timestamp]?"> </SCRIPT> <NOSCRIPT> <a href="http://www.nvadn.com/track/ck?oaparams=2__bannerid=805__zoneid=17__cb=4de0d9b1 e4__oadest=http%3A%2F%2Fad.doubleclick.net%2Fjump%2FN2992.149951.WIKINVEST%2 FB7967109%3Babr%3D%21ie4%3Babr%3D%21ie5%3Bsz%3D300x250%3Bord%3D%5Btim estamp%5D%3F" target="_blank"> <IMG SRC="http://ad.doubleclick.net/ad/N2992.149951.WIKINVEST/B7967109;abr=!ie4;abr=!ie5;sz =300x250;ord=[timestamp]?" BORDER=0 WIDTH=300 HEIGHT=250 ALT="Advertisement"></A> </NOSCRIPT>

Balance of Trade
The current account is a function of trade balance (exports minus imports), income from abroad (such as dividends, income by foreign subsidiaries etc.) and other transfers (such as foreign aid and grants). In the earliest years of the Eurozone, it consistently ran trade surpluses; however, both 2006 and 2008 have been more volatile with a greater trend towards negative trade balances.

Inflation
Inflation is the result of rising prices in an economy over time. In other words, when inflation rate is positive a currency buys less goods than it did in the past. The sole mandate of the ECB is to maintain inflation near 2%.

Status as Reserve Currency

The dollar has been the primary reserve currency of the world since World War II; however, this trend is changing. As of 2006, roughly 65% of reserves held by foreign banks were in dollars and 25% were in Euros.[5]

Investing in the Euro

An investor can invest in the euro by buying and holding it. Currencies, as an asset class, do not produce any returns by themselves. The currency is only useful if it is invested in another asset (such as equities or bond). Investors can buy and sell euro futures traded at the Chicago Mercantile Exchange. Futures are better instruments for speculation since they are leveraged and hence are more sensitive to currency movements. A US investor can buy an European stock ETF -- such as the Vanguard European ETF (VGK). The CurrencyShares Euro Trust (FXE) offers return on euro plus accrued interest. ETF's have the benefit of offering the return on the underlying asset class in addition to currency appreciation. Finally, a stronger euro helps european imports by making them relatively cheaper and hurts exports by making them more expensive for foreign buyers. An investor could bet on the euro by taking positions in European exporters and in companies that trade heavily with an euro member.

Companies that benefit from a stronger euro

Companies that manufacture abroad or purchase raw materials abroad, and then sell in Europe benefit from a strong Euro.[6]

Adidas AG (ADDYY) Puma AG Rudolf Dassler Sport (PUM-FF) BASF SE (BASFY)

Companies that benefit from a weaker euro

Greek shippers

Companies that manufacture in Europe and export to the U.S. such as [7]

Volkswagen (VLKAY) Henkel (HEN-FF)

Forex Trading[1]
Trading Hours
The most active EURO trading hours are from London Open (3:00AM ET / 8:00 GMT), Economic Releases (4:00AM ET / 9:00 GMT) and the typical time of release for U.S. Economic Releases (8:30AM ET/ 12:30 GMT).

Things to know when Trading the Euro

The Euro often moves with the Volatility Index. Lower volatility tends to be bearish for the EUR/USD and higher volatility has been bullish. Members of the Eurozone The euro is the only currency without a country. It is the presently the official currency for 16 countries and growing. All 27 members of the European Union except for Denmark and the United Kingdom are obliged to adopt the euro when they meet the criteria for entry. Nicknames The euro is also known as the single currency because it is the sole currency used by a number of European nations. Central Bank - The European Central Bank conducts monetary policy meetings12 times a year and their decisions on interest rates could have significant ramifications for the currency market. Jean-Claude Trichet is the current President of the European Central Bank. His term began in 2003 and will last until 2012. Most Active Trading Hours Since the EUR/USD is the most actively traded currency pair in the world, it sees quite a bit of volatility when European and U.S. economic releases are due for release which is usually between 4:00 AM or 5:00 AM ET (9:00 10:00 GMT) or 8:30 to 10:00am ET (13:00 15:00 GMT) What Does the Economy Rely On? The most important sector in the European Union is services, which makes up approximately 70 percent of GDP.

Who Does the Economy Rely on for Trade? Eurozone countries primarily trade with other members within the Eurozone. Outside of that, their biggest trading partners are the U.K. and U.S. Market Moving Economic Releases Central bank rate decisions are usually the most market moving indicators, which means that they can create the greatest volatility for any currency followed by the employment report, the consumer spending and inflation reports. In terms of the individual countries, the euro only responds to German economic data since Germany represents approximately 25 percent of the Eurozone on a GDP basis. Collectively, Germany, France, Italy and Spain make up 70 percent of Eurozone GDP.

Euro Economy[1]
The Euro Economy is comprised of 70% Services, 28% Industrial, and 2% Agriculture. It's largest trading partners are UK, US, China, Japan and Canada. Some other key facts about the Euro Economy: 1. 2. 3. 4. 5. Only Currency Without a Country Used by 16 Out of the 27 Members of European Union Second Largest Reserve Currency Behind U.S. Dollar Collectively, the Eurozone is the Second Largest Economy in the World Germany is the Largest and Most Important Country in the Eurozone

General Economic Statistics

2008 GDP Estimate USD $14.82 Trillion Population: Interest Rate* Inflation** Trade Balance*** 491 Million 1.5% 6% EUR -4 Billion (seasonally adjusted)

Market Moving Economic Releases

1. 2. 3. 4. 5. 6. ECB Rate Decision German IFO (Business Confidence) German Unemployment German Consumer Prices German GDP (Gross Domestic Product) Manufacturing and Service Sector PMI

References

 1.0 1.1 1.2 FX360.com, EURO Factsheet by Kathy Lien "Euro Area Balance of Trade", TradingEconomics, November 17, 2008 European Central Bank, Retrieved November 11, 2008 The Powers and Responsibilities of the European Central Bank, European Navigator, Retrieved November 14, 2008 5. "Could the Euro and Dollar Share Reserver Currency Status?", Portfolio, June 13, 2008 6. "Beward the Brawny Euro", BusinessWeek, November 29, 2004 7. "A Strong Euro with Few Admirers", NYTimes, May 9, 2003 1. 2. 3. 4. Category: Topic

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