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 in 19 countries now use it as their currency and enjoy its benefits.
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.
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.
All EU Member States form part of 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 necessary for the internal market to develop and flourish further. 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.
The Treaty states 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'). These criteria include low and stable inflation, exchange rate stability and sound public finances.
The monetary policy of the eurozone is the responsibility of the European Central Bank (ECB), which was created for that purpose, and the national central banks of the euro area countries. Together they compose the Eurosystem.
Fiscal and structural policies remain in the hands of individual national authorities. However, they must coordinate these policies in order to attain the common objectives of stability, growth and employment. A major coordination structure is the Stability and Growth pact, which contains agreed rules on fiscal discipline.
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.