The euro and you
The decision to use the euro was not a simple one. Its introduction was a long process across many countries.
However, the benefits it brings make it worthwhile, as you can read here.
- How was the euro introduced?
- One currency for all
- Who uses the euro?
- How does the euro work?
- How does the euro help us?
- Sharing our values
How was the euro introduced?
In the past, the countries in the European Union made several attempts to move towards economic union and a single currency. However, it was not until 1991, in the city of Maastricht in the Netherlands, that European leaders decided upon a firm timetable to adopt a single currency. The countries that decided to adopt the euro spent the following years preparing their economies – these preparations are known as 'economic convergence'.
On 1 January 1999, the euro was launched as a 'unit of account'. This meant that it was used in many financial operations on paper, but it was not yet available as cash – as banknotes and coins. This was done to allow time for all the different financial systems, in banks and companies, to be adapted to the new currency.
Then, on 1 January 2002, euro banknotes and coins were launched in the 12 countries that were adopting the euro. Cash machines at banks gave euro, and shops only gave euro as change. Within a short period, all the old national currencies had been collected by shops and banks and removed from circulation – euro-area citizens only had euro in their pockets and purses.
In January 2007, Slovenia was the first of the newer Member States to adopt the euro, followed by Malta and Cyprus in January 2008, Slovakia in 2009 and Estonia in 2011.
The euro area now numbers 17 countries.
One currency for all
Using many different currencies within Europe made life more difficult and more expensive when moving between countries. Exchanging currencies cost money: trade was more expensive and travel cost more. Several countries in the European Union decided to replace their national banknotes and coins with a single currency.
This single currency – the euro – was first introduced in 1999 as 'book money', with the national currencies still circulating but having become sub-units of the euro.
Then, in 2002, the changeover to the new currency was completed with the introduction of euro banknotes and coins.
Today, the euro is the only currency of all the countries in the euro area.
This means that you no longer need to exchange coins and banknotes when you cross borders. So trade is much easier, giving us greater choice of what to buy.
Likewise, travel is much easier and less expensive because we no longer need to change currencies when going on holiday abroad.
And finally, because the euro area is large, more than 332 million citizens, it is economically powerful.
This means that there is more economic stability – which helps raise our standard of living.
Who uses the euro?
Not all countries in the European Union use the euro – some of them still use their own national currencies.
This is mainly because their economies are not yet ready to adopt the euro, but two countries (Denmark and the United Kingdom) have decided that they will keep their national currency for the time being.
Most of these countries are making preparations to adopt the euro and join the euro area in the future.
For example, Slovenia joined the euro area in 2007, and Cyprus and Malta joined in 2008, Slovakia in 2009 and Estonia in 2011.
The countries that are in the euro area are shown on the map. People in these countries use the euro in everyday life.
How does the euro work?
For money to keep its value a country's economy must be well run.
Similarly, the euro-area economy must also be well run if the euro is to do well and help create wealth and jobs in the European Union.
This is achieved through Economic and Monetary Union (EMU). All the countries in the European Union are part of EMU.
The European Commission’s headquarters in Brussels, Belgium
In EMU, each country in the euro area runs its own economy while keeping to certain rules to make sure that the euro remains strong and the euro-area economy does well.
These rules put limits on how much money a country can borrow.
By limiting the amount of debt a country has, the rules of EMU ensure that a country has a sustainable economy - in other words, that it can pay its debts, and its pensions, in the future. It is the work of the European Commission and of the Council, where the Ministers of the Member States meet, to monitor that each country is keeping to the agreed rules.
The European Central Bank in Frankfurt, Germany
The European Central Bank (ECB), based in Frankfurt in Germany, makes a large contribution to the economic stability of the euro area.
The ECB has the sole right of issuing banknotes and is in charge of monetary policy.
This means that the ECB keeps price inflation low and stable. Price inflation refers to how much prices rise in the shops and elsewhere every year. Low price inflation is good for consumers and businesses.
How does the euro help us?
- Because the euro is used throughout the 17 countries in the euro area, we can
easily make price comparisons.
So, we can order things, for example a television set or a book, from abroad if it is cheaper there.In turn, this increases competition among suppliers and shops to reduce prices even more.
- In the past, exchanging currencies was quite expensive because the bank charged for this service. So, nowadays travel within the euro area, whether for work, tourism or to study, is less expensive and easier. We no longer need to exchange currencies when we travel to another euro-area country.
- Because the European Central Bank keeps price inflation low this means that interest rates are also low. So, borrowing money is less expensive because the interest repayments on the loan are lower. This makes it much easier for citizens to buy a first home or a new car.
Low and stable inflation makes life much easier for businesses.
Companies can trade abroad more easily. And they can borrow money more easily to make investments in their companies for the future. All this helps economic growth and creates more jobs.
Sharing our values
The euro does not only have a value as money.
It also has a strong symbolic value for Europe and Europeans.
Much of the good work the EU does is not always obvious - it is often hidden in legal documents and pages of reports. But the euro can be held in your hand – it is very real.
The euro is the most widespread symbol of what Europe is about – unity in diversity:
- Unity – because it can be found all over the euro area and has the same value everywhere;
- Diversity – because the many designs of the national sides of the coins reflect the variety of Europe, its history, regions and cultures.
So, the euro is an everyday symbol of the economic integration of Europe into the single market, and of the progress of European integration overall.