The euro is the single currency shared by 19 of the European Union's Member States, which together make up the euro area. The introduction of the euro in 1999 was a major step in European integration. It has also been one of its major successes: more than 337.5 million EU citizens now use it as their currency and enjoy its benefits, which will spread even more widely as other EU countries adopt the euro.
When the euro was launched on 1 January 1999, it became the new official currency of 11 Member States, replacing the old national currencies – such as the Deutschmark and the French franc – in two stages. First the euro was introduced as an accounting currency for cash-less payments and accounting purposes, while the old currencies continued to be used for cash payments. Since 1 January 2002 the euro has been circulating in physical form, as banknotes and coins. The euro is not the currency of all EU Member States. Two countries (Denmark and the United Kingdom) have ‘opt-out’ clauses in the Treaty exempting them from participation, while the remainder (several of the more recently acceded EU members plus Sweden) have yet to meet the conditions for adopting the single currency.
All EU Member States form part of Economic and Monetary Union (EMU), which can be described as an advanced stage of economic integration based on a single market. It involves close co-ordination of economic and fiscal policies and, for those countries fulfilling certain conditions, a single monetary policy and a single currency – the euro. The process of economic and monetary integration in the EU parallels the history of the Union itself. When the EU was founded in 1957, the Member States concentrated on building a 'common market'. However, over time it became clear that closer economic and monetary co-operation was desirable for the internal market to develop and flourish further. But the goal of achieving the EMU including a single currency was not enshrined until the 1992 Maastricht Treaty (Treaty on European Union), which set out the ground rules for its introduction. These state what the objectives of EMU are, who is responsible for what, and what conditions Member States must meet in order to adopt the euro. These conditions are known as the 'convergence criteria' (or 'Maastricht criteria') and include low and stable inflation, exchange rate stability and sound public finances.
With the launch of the euro monetary policy became the responsibility of the independent European Central Bank (ECB), which was created for that purpose, and the national central banks of the Member States having adopted the euro. Together they compose the Eurosystem. Fiscal policy (public revenue and expenditure) remains in the hands of individual national authorities – although they undertake to adhere to commonly agreed rules on public finances known as the Stability and Growth Pact. Member States also retain overall responsibility for their structural policies (i.e. labour markets, pension and capital markets), but agree to co-ordinate them in order to achieve the common economic goals.
The euro is the currency of the 337.5 million people who live in the 19 euro area countries. It is also used, either formally as legal tender or for practical purposes, by other countries such as close neighbours and former colonies. It is therefore not surprising that the euro has rapidly become the second most important international currency after the dollar.
Apart from making travelling easier within the EU, a single currency makes economic and political sense. The framework under which the euro is managed underpins its stability, contributes to low inflation and encourages sound public finances. A single currency is also a logical complement to the single market and contributes to making it more efficient. Using a common currency increases price transparency, eliminates currency exchange costs, facilitates international trade and gives the EU a more powerful voice in the world. The size and strength of the euro area also better protect it from external economic shocks, such as unexpected oil price rises or turbulence in the currency markets. Last but not least, the euro gives the EU’s citizens a tangible symbol of their European identity.
Against the background of the current debt crisis important measures to improve the economic governance in the EU and the euro area in particular have been taken. EU Member States have strengthened the Stability and Growth Pact, introduced a new mechanism to prevent or correct macroeconomic imbalances and are increasingly coordinating structural policies. These are crucial steps to strengthen the "E" - the economic leg - of the EMU and to ensure the success of the euro in the long run.
All European Union Member States are part of Economic and Monetary Union (EMU) and coordinate their economic policy-making to support the economic aims of the EU. However, a number of Member States have taken a step further by replacing their national currencies with the single currency – the euro. These Member States form the euro area.
When the euro was first introduced in 1999 – as 'book' money –, the euro area was made up of 11 of the then 15 EU Member States. Greece joined in 2001, just one year before the cash changeover, followed by Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015. Today, the euro area numbers 19 EU Member States.
Of the Member States outside the euro area, Denmark and the United Kingdom have 'opt-outs' from joining laid down in Protocols annexed to the Treaty, although they can join in the future if they so wish. Sweden has not yet qualified to be part of the euro area.
The remaining non-euro area Member States are among those which acceded to the Union in 2004 and 2007, after the euro was launched. At the time of their accession, they did not meet the necessary conditions for entry to the euro area, but have committed to joining as and when they meet them – they are Member States with a 'derogation', such as Sweden.
Andorra, Monaco, San Marino and the Vatican City have adopted the euro as their national currency by virtue of specific monetary agreements with the EU, and may issue their own euro coins within certain limits. However, as they are not EU Member States, they are not part of the euro area.
By adopting the euro, the economies of the euro-area members become more integrated. This economic integration must be managed properly to realise the full benefits of the single currency. Therefore, the euro area is also distinguished from other parts of the EU by its economic management – in particular, monetary and economic policy-making.