Posted by David Moore on December 28th, 2018.
The Euro will be 20 years old on 1 January 2019 – let’s take a brief look at the European currency’s biography.
Born in cyberspace on the first day of January in 1999, it took a further three years for the Euro to emerge into the physical world – in 2002 – in the now-familiar form of notes and coins. In the 20 years since its conception it has become the legal currency of 19 European states.
Its prehistory, however, can be traced back to 1979 when it was first dreamt into being as a part of the European Monetary System arrangement. Back then it was known as the European Currency Unit – or ECU – which was named after the first gold coin – an écu (meaning shield in French) – that was minted during the reign of Louis IX of France (1226-1270).
Originally intended to stabilise exchange rates between national European currencies such as the Franc and the Deutschmark, the European Economic Community (EEC) developed the Exchange Rate Mechanism (ERM) which was – initially – avoided by the United Kingdom.
1990 saw the Euro’s first real signs of solidifying as a unified single currency when exchange rates were abolished as part of the Delors Report. This time the UK again opted-out, however it did become a part of the Euro’s fixed exchange rate system, ERM.
September 16 1992 saw the UK withdraw from the ERM exchange rate system, however, on the day since known as ‘Black Wednesday’ Sterling crashed in value against the rising ECU – costing the UK approximately £3.4 billion as the government tried to defend the Pound on the open market. This was a result of the UK being unable to prevent the Pound from falling below the lower limit specified by the ERM.
1992’s Maastricht Treaty was what effectively solidified the European Union into its now recognisable form, which was followed by the Lisbon Treaty in 2009.
A crucial part of this Treaty was the transmutation of the Euro into a practical single currency for the bloc. Germany hesitantly joined in, although somewhat worried that the powerful Deutschmark would lose some of its strength. Nevertheless, it took the plunge and was – perhaps equally reluctantly – followed by France.
Well, the Euro has many advantages, and foremost is the fact that it unified a sense of European identity; providing an important symbol of unity after Europe’s two World Wars. In essence it was envisaged as an extension of the European Union: binding nations together and providing improved security across businesses and markets.
On top of that, it has strengthened the European Union’s position as a mighty player in the global economy, challenging the might of the United States of America and offering an alternative safe haven currency.
The US Dollar and the Euro currency pairing is, indeed, the most highly traded in the world.
The Euro has, furthermore, been instrumental in integrating financial markets, and enabling the flourishing of economic stability and growth throughout the European Union.
It has also made life easier for the average citizen of Europe, enabling inflation to be effectively moderated and therefore stabilising prices for consumers. The Euro also offers increased economic stability, providing a haven for businesses to invest, expand and provide higher levels of employment.
These benefits are not, however, spontaneous, but are managed by the Treaty and the Stability Growth Pact (SGP) which is a part of Economic and Monetary Union (EMU).
But, foremost, it is the enormous size of the Eurozone – which is presently spread across 19 countries today – that enables it to absorb any global economic ‘shocks’.
The Euro also effectively removes is trade barriers, which in turn benefits investors and traders alike by increasing the attractiveness of doing business with the European Union.
A single European currency began as an ambition for the EU – one of its ultimate goals. It is, of course, a unique currency in the way that it encourages cross-border trade by creating an ease of transfer, without any fiddly exchange rates and so on between countries within the Eurozone. And, of course, it makes it much easier to travel through Europe with one consistent currency which can be used almost anywhere you visit, with a few exceptions.
All nineteen countries in the Eurozone use the Euro as their currency, along with four European principalities – Vatican City, San Marino, Monaco and Andorra. Other European countries, such as Denmark, have retained their national currencies but peg them to the Euro. Perhaps less well known is the fact that fourteen African nations – former French colonies – also peg their currencies to the Euro.
The Euro, however, is not without its controversies. Critics say its value has been set artificially high to benefit German exporters at the expense of the economically disadvantaged southern European nations. They say that countries such as Greece are being held hostage, trapped inside the Euro’s rigid structure and unable to exert control over their own monetary policy.
In a sense, the Euro has become the ultimate symbol of the EU – that is a currency which can bind a group of divergent nations together. 20 years may seem like a long time but it is but a blink of an eye in historical terms. Whether the Euro makes it to 30, or morphs into something different altogether – perhaps a CryptoEuro? – remains to be seen.
In the meantime, however, Happy Birthday to the Euro!
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