The euro was created because a single currency offers many advantages and benefits over the previous situation where each Member State had its own currency. Not only are fluctuation risks and exchange costs eliminated and the single market strengthened, but the euro also means closer co-operation among Member States for a stable currency and economy to the benefit of us all.
When the EU was founded in 1957, the Member States concentrated on building a 'common market' for trade. However, over time it became clear that closer economic and monetary co-operation was needed for the internal market to develop and flourish further, and for the whole European economy to perform better, bringing more jobs and greater prosperity for Europeans. In 1991, the Member States approved the Treaty on European Union (the Maastricht Treaty), deciding that Europe would have a strong and stable currency for the 21st century.
The benefits of the euro are diverse and are felt on different scales, from individuals and businesses to whole economies. They include:
Many of these benefits are interconnected. For example, economic stability is good for a Member State’s economy as it allows the government to plan for the future. But economic stability also benefits businesses because it reduces uncertainty and encourages companies to invest. This, in turn, benefits citizens who see more employment and better-quality jobs.
How do these benefits of the euro arise?
The single currency brings new strengths and opportunities arising from the integration and scale of the euro-area economy, making the single market more efficient.
Before the euro, the need to exchange currencies meant extra costs, risks and a lack of transparency in cross-border transactions. With the single currency, doing business in the euro area is more cost-effective and less risky.
Meanwhile, being able to compare prices easily encourages cross-border trade and investment of all types, from individual consumers searching for the lowest cost product, through businesses purchasing the best value service, to large institutional investors who can invest more efficiently throughout the euro area without the risks of fluctuating exchange rates. Within the euro area, there is now one large integrated market using the same currency.
The scale of the single currency and the euro area also brings new opportunities in the global economy. A single currency makes the euro area an attractive region for third countries to do business, thus promoting trade and investment. Prudent economic management makes the euro an attractive reserve currency for third countries, and gives the euro area a more powerful voice in the global economy.
Scale and careful management also bring economic stability to the euro area, making it more resilient to so-called external economic 'shocks', i.e. sudden economic changes that may arise outside the euro area and disrupt national economies, such as worldwide oil price rises or turbulence on global currency markets. The size and strength of the euro area make it better able to absorb such external shocks without job losses and lower growth.
Realising the benefits
The euro does not bring economic stability and growth on its own. This is achieved first through the sound management of the euro-area economy under the rules of the Treaty and the Stability and Growth Pact (SGP), a central element of Economic and Monetary Union (EMU). Second, as the key mechanism for enhancing the benefits of the single market, trade policy and political co-operation, the euro is an integral part of the economic, social and political structures of today’s European Union.