After various attempts and intense discussions, the euro has been in existence as a cash currency for 26 years. However, due to world events and the threat from the Trump administration to impose 10 percent tariffs on all EU goods, the monetary union has become confused and lacks consensus on the main direction of economic policy. But the euro remains a means of payment used by hundreds of millions of people. How did the European currency come about?
Prerequisites for the emergence of the euro
“Europe will be created through a currency, or it will not be created at all.” French economist Jacques Rueff wrote this statement in 1950. It has been often quoted because it is a good starting point for studying the European Monetary Union and the history of the euro.
In December 1978, the European Council decided to create the European Monetary System (EMS) to tie European currencies more closely to each other and to limit exchange rate fluctuations. Over the course of ten years, EMU achieved greater stability between currencies. Exchange rates were to follow the European Currency Unit (ECU) with a maximum deviation of 2.25 percent.
Economic and Monetary Union (EMU), with the aim of closely coordinating the economic policies of the Member States, was already one of the central requirements of the Single European Act (SEA) of 1987. It agreed to complete the formation of the single European market. The aim of EMU was, in particular, to complement the single European market with a common currency with a high level of price stability. At the 1988 EU summit in Hanover, a working group was set up under the leadership of the then President of the Commission, Jacques Delors, to examine and propose concrete steps towards economic and monetary union. The Delors plan envisaged completing EMU in three successive stages.
First steps towards a common currency
The Maastricht Treaty on European Union in December 1991 formally established a three-stage plan and created the institutional framework for European Monetary Union. The so-called convergence criteria defined the conditions for countries to adopt the euro. According to these criteria, a country's annual budget deficit could not exceed three percent and total public debt could not exceed 60 percent of gross domestic product. The transition to the second stage of economic and monetary union was set for 1994, and the transition to the third stage for the period between 1996 and 1 January 1999.
Formally, the Maastricht Treaty and the Stability and Growth Pact set strict rules for joining the monetary union. The Maastricht requirements were to be put to their first real test when it came to determining who would join from the outset, i.e. from 1 January 1999. Of the 15 EU countries at that time, twelve expressed an interest in participating. Only Denmark, the United Kingdom and Sweden voluntarily abstained. In the end, the monetary union began with a large group of member states, namely eleven of the twelve interested parties (Greece was not initially included).
Introduction of the euro into circulation
In December 1995, the European Council in Madrid named the new currency the "euro", at the suggestion of the German delegation led by the Federal Minister of Finance, Theo Weigel. A transitional period was established between its introduction on the financial markets as non-cash money (1999) and as cash (2002). The European Council in Amsterdam in June 1997 adopted the "Stability and Growth Pact", which was intended to ensure budgetary discipline in the EMU member states and the stability of the euro.
On 31 December 1998, the exchange rates between the euro in Europe and the individual currencies of the member states were fixed, and 1 January 1999 was the day when the euro was introduced as legal tender. At the same time, an unprecedented event in the world of finance took place: the European Central Bank (ECB) took over responsibility for European monetary policy, which had previously been the responsibility of all national central banks. This was the first time in European history that sovereign states had transferred their sovereignty over monetary policy to a newly created supranational institution.
Eurozone expansion after 2002
When the euro currency was introduced, 14 billion banknotes worth 633 billion euros were printed from 1 January 2002 and 52 billion coins were minted from 250,000 tonnes of metal. Retailers and banks already received the new currency in September 2001. From 17 December 2001, so-called "starter kits" were sold at bank counters. For example, for 20 marks in Germany, people received 10.23 euros in coins. That is, 1 euro was equivalent to 1.95 German marks.
This was nonsense, as the euro was introduced as cash in as many as 12 countries. This created the eurozone, a single currency area. It included: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Spain, Italy, Luxembourg, the Netherlands, Portugal and France. Thanks to good preparation, the introduction went smoothly, and the new currency was accepted by the population without much rejection or resistance. However, despite political assurances to the contrary, prices rose, especially in Germany and Austria. Therefore, in the vernacular, the euro quickly became known as “teiro” – “expensive”.
From 1999 until the end of 2007, before the global economic and financial crisis, most eurozone members significantly reduced their debt. In its first decade, the euro was an undisputed success, stable domestically with low inflation and externally against other world currencies. Slovenia joined the eurozone in 2007, followed by Malta and Cyprus a year later, and Slovakia and Estonia in 2011. The sovereign debt crisis that erupted in some eurozone countries in May 2011 is often referred to as the “euro crisis,” although the euro is not in a currency crisis. It has become clear that the European Stability and Growth Pact in its current form cannot prevent irrational fiscal policies in individual countries.
There are currently 20 countries in the eurozone out of the 27 EU member states:
- Austria
- Belgium
- Cyprus
- Estonia
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Latvia
- Lithuania
- Luxembourg
- Malta
- Netherlands
- Portugal
- Slovakia
- Slovenia
- Spain
- Croatia (joined the eurozone on January 1, 2023)
Why have some EU countries still not switched to the euro?
Bulgaria, the Czech Republic, Denmark, Hungary, Poland, Romania and Sweden still use their own currencies and are not part of the eurozone. Why? Imagine a country that has used its own currency for centuries. It is present in the wallets of its citizens, appears in national songs, and is printed on banknotes with portraits of historical figures. It is a symbol of independence, financial identity, a kind of economic flag. And then, one day, this currency is proposed to be replaced. Instead of the usual coins and banknotes, a new one, common to several dozen other countries. And although the euro seems like a logical choice, not all countries of the European Union are ready to say goodbye to their money.
It is not just a matter of nostalgia or patriotism. Countries that delay the transition to the euro are guided primarily by pragmatic calculations. For some, this means losing control over their own monetary policy. After all, having adopted the euro, a country will no longer be able to independently set the discount rate or regulate the circulation of currency - everything will be managed by the European Central Bank in Frankfurt. And what if the economy needs a different exchange rate than in neighboring countries? What if a crisis in one member of the eurozone hurts all the others?
Another factor is fear of prices. Many Europeans remember how, after the introduction of the euro, the prices of goods and services in their neighbors rose sharply. People worry that their salaries will not have time to adapt to the new currency, and local businesses will lose competitiveness. This is especially worrying for countries where the standard of living differs significantly from, say, Germany or France.
And, of course, there are those who are simply in no hurry. Some states are postponing the transition to the euro, although they are formally obliged to do so. They are watching how the situation develops in others, assessing the pros and risks, weighing each step. Some, like Denmark, agreed on a special status at the start and received the right not to join the eurozone at all. Others, like Sweden or Poland, are openly delaying, not introducing the reforms necessary for the transition.
In the end, the issue is not just economics or politics, but also psychology. Money is more than just banknotes. It embodies trust, stability, and even national pride. So while some countries see the euro as an opportunity for growth, others hesitate because they don’t want to let go of what they have considered theirs for generations.
Interesting historical facts about the Euro currency
The currency of the European Union is a symbol of a united Europe, an ambitious project that has come a long way from idea to reality. It is hard to imagine now that there was a time when each country had its own currency, and travelers carried thick wallets with francs, marks, liras, pesetas and other banknotes. However, the history of the euro is full of unexpected turns, curiosities and even political intrigues.
As we mentioned above, Europe began to think about a common currency after World War II. The continent, exhausted by conflicts, was looking for ways to unite, and financial stability became one of the key points. But the path to the euro was long. The first attempts to create a single currency system appeared in the 70s, but they quickly collapsed due to economic crises. Only in 1992 did the countries sign the Maastricht Treaty, which officially enshrined the plan for the transition to a common currency.
- Interestingly, the name “euro” was not the only option. During the development phase, the names “ecu” (in honor of an old French coin), “European unit” and even “florin” were proposed. But in the end, they chose the short and understandable “euro”, which is easy to pronounce in almost all languages of the continent.
- The euro first appeared not in the form of banknotes or coins, but as a virtual currency. On January 1, 1999, banks and financial institutions began using it for payments, but in ordinary shops people paid in their national money for another three years. It was not until January 1, 2002, that paper euros and metal coins found their way into the hands of ordinary Europeans.
- The transition to the new currency was not without its difficulties. One of the most interesting moments was the phenomenon of “psychological inflation.” In some countries, people began to complain that prices had risen rapidly. In fact, in many cases the increase was minimal, but the change in the unit of measurement created the impression that everything had become significantly more expensive. This was especially felt in Italy, where the old prices in lira sounded impressively large, and the new ones, even if they were equivalent, seemed inflated.
- The design of the euro also has its own characteristics. Banknotes are decorated with images of bridges, arches and windows, symbolizing unity and connection between countries. But these architectural elements are not real monuments, but fictional ones. Artist Robert Kalina created them specifically so that no country would get an advantage in reflecting its heritage. However, later in the Netherlands they decided to bring the drawings to life and built copies of the "Euro bridges" in the real world.
- The euro has repeatedly been at the center of political debate. For example, the United Kingdom, despite being a member of the EU, never adopted the single currency, retaining the pound sterling. When Greece was on the verge of financial collapse in 2012, there was a real threat of the country leaving the eurozone, which could have created a domino effect for other countries. In the end, the euro survived, but this crisis left its mark on the history of the currency forever.
Today, the euro is one of the most influential currencies in the world, on a par with the US dollar. It has gone through a difficult path from an idea to a symbol of European unity, and its history continues to be written every day.
Conclusion
The euro is not just money, but a reflection of the changes that Europe has experienced in recent decades. It was born from the desire for unity, went through economic experiments, political disputes and even skepticism from many countries. But, despite all the doubts and difficulties, this currency has become a symbol of stability for millions of people.
It is convenient for business, facilitates travel, unites different cultures under a common denominator. At the same time, the history of the euro reminds us that finance is not only about numbers, but also about emotions, traditions, and a sense of national identity. Its journey is not over yet: possible enlargement, economic challenges, and new political decisions lie ahead. But one thing is already clear: the euro has become an integral part of modern Europe, and its emergence has forever changed the financial map of the world.
