"As from 1.1.1999 the currency of the participating Member States shall be the euro". This sentence will be one of the core provisions of the monetary law of the Member States which will have adopted the euro at the beginning of the third stage of Economic and Monetary Union. The main parts of the legal framework for the introduction and the use of the euro are laid down in two Council regulations:
- Council regulation on the introduction of the euro and
- Council regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro.
Regulation 1103/97, which is based on Article 235 of the Treaty, entered into force on
20 June 1997. It is the first regulation dealing with the single currency, the euro. The regulation is binding and directly applicable in the whole European Union.
The basis for both regulations was laid down in 1995. In May 1995, the Commission had published its Green Paper on the practical arrangements for the introduction of the single currency in which the principal issues relating to the legal framework for the euro were identified: the definition of the status of the single currency and of the national currency units, the definition of legal tender, the continuity of contracts, rounding rules and provisions for banknotes.
After intensive discussion in 1995 on the euro introduction scenario, the European Council decided on 15/16 December 1995 in Madrid on the reference scenario for the introduction of the euro. For the legal framework, the European Council agreed that:
"A Council regulation entering into force on 1 January 1999 will provide the legal framework for the use of the Euro. From that date, the Euro will be "a currency in its own right" and the official ECU basket will cease to exist. This Regulation will have the effect that the national currencies and the Euro will become different expressions of what is economically the same currency. As long as different national monetary units still exist, the Council Regulation will establish a legally enforceable equivalence between the Euro and the national currency units ("legally enforceable equivalence" means that each monetary amount is assigned, in a legally enforceable way, an unchangeable countervalue in terms of the Euro unit at the official conversion rate and vice versa). For the period before the deadline set for the completion of the changeover, the Regulation will ensure that private economic agents will be free to use the Euro; at the same time they should not be obliged to do so. As far as possible, they should be allowed to develop their own mechanisms of adjustment to the changeover; however, the implementation of these principles should take into account market practices in terms of standardization. The Regulation will also provide that national banknotes will continue to remain legal tender within the boundaries of the respective national territories until the completion of the changeover to the single currency. The technical preparatory work for this Regulation shall be completed at the latest by the end of 1996".
The Commission put forward proposals on 16 October 1996 which were based on this reference scenario. They also profited from substantial input by the European Monetary Institute and from intensive consultations which the Commission had organised with representatives of all sectors concerned by the introduction of the euro. Consultations with European banking associations took place in July and September 1996, and a hearing with a broader participation (consumers, employer’s organisations, retailers, vending associations) was also organised in September. These consultations showed that for at least some provisions of the legal framework there was an urgent need for legal certainty that called not only for timely preparation, but also for early formal adoption and entry into force. The banking industry, in particular, argued that the formal adoption of provisions relating to the continuity of contracts, the conversion of the ECU-basket and on rounding rules should take place as soon as possible.
Article 109 l (4) of the Treaty, which calls for the adoption of "the other measures necessary for the rapid introduction of the euro", is however only available as a legal basis when the participating Member States are known. Therefore the Commission, following an agreement reached at the informal Ecofin meeting in Dublin in September 1996, decided to split up the legal framework and to base those provisions for which legal certainty is most urgently needed on Article 235, while basing the other monetary law provisions on Article 109 l (4).
The Commission proposals were subsequently discussed in the Council under the Irish Presidency, politically endorsed by the Ecofin Council in Dublin on 12 December 1996, and welcomed by the European Council in Dublin on 13/14 December. The European Parliament and the European Monetary Institute had given their opinion on the legal framework on 28 and 29 November 1996 respectively.
At Dublin, two issues were left open: the precise date for the introduction of euro banknotes and coins, and the redenomination of outstanding debt. It was agreed that a precise date will be decided "in accordance with the Madrid scenario, when this regulation is adopted", that is in Spring 1998. As for redenomination, following a public hearing with financial markets representatives on 13 February 1997 and further discussions with Member States, a compromise was reached at the Ecofin meeting on 9 June 1997.
The draft 109 l (4) regulation including the provisions on redenomination was published in the Official Journal on 2 August 1997. The adoption of this regulation will, given the voting rules foreseen in Article 109 l (4) of the Treaty, only take place in 1998 once the participating Member States are known. Nevertheless, the political blessing of the European Council in Dublin and in Amsterdam, and the publication of the text of the draft regulation should provide the legal certainty the markets had asked for, to organise their own preparatory work.