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The euro (
symbol A symbol is a mark, sign, or word In linguistics, a word of a spoken language can be defined as the smallest sequence of phonemes that can be uttered in isolation with semantic, objective or pragmatics, practical meaning (linguistics), m ...

symbol
:
The euro sign () is the currency sign A currency symbol or currency sign is a graphic symbol used as a shorthand for a currency's name, especially in reference to amounts of money. Usage When writing currency amounts, the location of the sym ...

€
;
code In communication Communication (from Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', mean ...
: EUR) is the official
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Money is any item or verifiable record that is generally accepted as payment for goods and services ...

currency
of 19 of the
member states A member state is a state that is a member of an international organization An international organization (also known as an international institution or intergovernmental organization) is a stable set of norms and rules meant to govern the be ...
of the
European Union The European Union (EU) is a political and economic union of member states that are located primarily in Europe Europe is a which is also recognised as part of , located entirely in the and mostly in the . It comprises the wester ...

European Union
. This group of states is known as the
eurozone The eurozone, officially called the euro area, is a monetary union of 19 Member state of the European Union, member states of the European Union (EU) that have adopted the euro (euro sign, €) as their primary currency and sole legal tender. T ...

eurozone
or euro area and includes about 343 million citizens . The euro, which is divided into 100 cents, is the second-largest and second-most traded currency in the
foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision makin ...
after the
United States dollar The United States dollar (symbol A symbol is a mark, sign, or that indicates, signifies, or is understood as representing an , , or . Symbols allow people to go beyond what is n or seen by creating linkages between otherwise very diffe ...
. The currency is also used officially by the
institutions of the European Union The institutions of the European Union are the seven principal decision-making bodies of the (EU). They are, as listed in Article 13 of the : * the , * the (of Heads of State or Government), * the (of national Ministers, a Council for ea ...
, by four European microstates that are not EU members, the
British Overseas Territory The British Overseas Territories (BOTs), also known as United Kingdom Overseas Territories (UKOTs), are fourteen dependent territory, territories all with a constitutional and historical link with the United Kingdom. They are remnants of the B ...
of
Akrotiri and Dhekelia The Sovereign Base Areas of Akrotiri and Dhekelia ( SBA; el, Περιοχές Κυρίαρχων Βάσεων Ακρωτηρίου και Δεκέλιας, ''Periochés Kyríarchon Váseon Akrotiríou ke Dekélias''; tr, Ağrotur ve Dikelya ...

Akrotiri and Dhekelia
, as well as unilaterally by
Montenegro Montenegro (; cnr, Crna Gora, , , ; sq, Mali i zi) is a country in Southeastern Europe Southeast Europe or Southeastern Europe () is a geographical subregion A subregion is a part of a larger region In geography Geography (fro ...

Montenegro
and
Kosovo Kosovo, or ; sr-Cyrl, Косово officially the Republic of Kosovo,; sr, / is a partially recognised state in Southeast Europe Southeast Europe or Southeastern Europe () is a geographical subregion A subregion is a part of a ...

Kosovo
. Outside Europe, a number of also use the euro as their currency. Additionally, over 200 million people worldwide use currencies pegged to the euro. The euro is the second-largest
reserve currency A reserve currency (or anchor currency) is a foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a ...
as well as the second-most traded currency in the world after the United States dollar. , with more than €1.3 trillion in circulation, the euro has one of the highest combined values of banknotes and coins in circulation in the world. The name ''euro'' was officially adopted on 16 December 1995 in
Madrid Madrid ( , ) is the capital and most populous city of Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = , national_anthem = , image_ ...

Madrid
. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former
European Currency Unit The European Currency Unit (, ; ₠, ECU, or XEU) was a unit of account used by European Economic Community The European Economic Community (EEC) was a regional organization that aimed to bring about economic integration among its membe ...
(ECU) at a ratio of 1:1 (US$1.1743). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members, and by March 2002 it had completely replaced the former currencies. While the euro dropped subsequently to US$0.83 within two years (26 October 2000), it has traded above the U.S. dollar since the end of 2002, peaking at US$1.60 on 18 July 2008 and since then returning near to its original issue rate. In late 2009, the euro became immersed in the
European sovereign-debt crisis The European debt crisis (often also referred to as the eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union The European Union (EU) is a political and econ ...
, which led to the creation of the
European Financial Stability Facility The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the eurozone The eurozone, officially called the euro area, is a monetary union of 19 Member state of the European Union, member states of ...
as well as aimed at stabilising and strengthening the currency.


Administration

The euro is managed and administered by the
Frankfurt Frankfurt, officially Frankfurt am Main (; Hessian dialects, Hessian: , "Franks, Frank ford (crossing), ford on the Main (river), Main"; french: Francfort-sur-le-Main), is the most populous city in the States of Germany, German state of Hess ...

Frankfurt
-based
European Central Bank The European Central Bank (ECB) is the prime component of the Eurosystem The Eurosystem is the monetary authority In finance Finance is the study of financial institutions, financial markets and how they operate within the financia ...

European Central Bank
(ECB) and the
Eurosystem The Eurosystem is the monetary authority In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investment ...
(composed of the
central bank A central bank, reserve bank, or monetary authority is an institution that manages the and of a or formal monetary union, and oversees their . In contrast to a , a central bank possesses a on increasing the . Most central banks also have ...

central bank
s of the eurozone countries). As an independent central bank, the ECB has sole authority to set
monetary policy Monetary policy is the policy adopted by the monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation targeting, infla ...

monetary policy
. The Eurosystem participates in the printing, minting and distribution of
notes Note, notes, or NOTE may refer to: Music and entertainment * Musical note In music, a note is a symbol denoting a musical sound. In English usage a note is also the sound itself. Notes can represent the Pitch (music), pitch and Duration (music), ...

notes
and
coins A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hell ...

coins
in all member states, and the operation of the eurozone payment systems. The 1992
Maastricht Treaty The Treaty on European Union, commonly known as the Maastricht Treaty, is the foundation treaty of the European Union (EU). Concluded in 1992 between the then-twelve Member state of the European Union, member states of the European Communities, ...
obliges most EU member states to adopt the euro upon meeting certain monetary and budgetary
convergence criteria The euro convergence criteria (also known as the Maastricht criteria) are the criteria which European Union The European Union (EU) is a political and economic union of Member state of the European Union, member states that are located ...
, although not all states have done so. Denmark has negotiated exemptions, while Sweden (which joined the EU in 1995, after the Maastricht Treaty was signed) turned down the euro in a non-binding referendum in 2003, and has circumvented the obligation to adopt the euro by not meeting the monetary and budgetary requirements. All nations that have joined the EU since 1993 have pledged to adopt the euro in due course. The Maastricht Treaty was later amended by the Treaty of Nice, which closed the gaps and loopholes in the Maastricht and Rome Treaties.


Issuing modalities for banknotes

Since 1 January 2002, the national central banks (NCBs) and the have issued euro banknotes on a joint basis. Eurosystem NCBs are required to accept euro banknotes put into circulation by other Eurosystem members and these banknotes are not repatriated. The ECB issues 8% of the total value of banknotes issued by the Eurosystem. In practice, the ECB's banknotes are put into circulation by the NCBs, thereby incurring matching liabilities vis-à-vis the ECB. These liabilities carry interest at the main refinancing rate of the ECB. The other 92% of euro banknotes are issued by the NCBs in proportion to their respective shares of the ECB capital key, calculated using national share of European Union (EU) population and national share of EU GDP, equally weighted.


Characteristics


Coins and banknotes

The euro is divided into 100 cents (also referred to as ''euro cents'', especially when distinguishing them from other currencies, and referred to as such on the common side of all cent coins). In Community legislative acts the plural forms of ''euro'' and ''cent'' are spelled without the ''s'', notwithstanding normal English usage. Otherwise, normal English plurals are used, with many local variations such as ''centime'' in France. All circulating coins have a ''common side'' showing the denomination or value, and a map in the background. Due to the linguistic plurality in the European Union, the Latin alphabet version of ''euro'' is used (as opposed to the less common Greek or Cyrillic) and
Arabic numerals Arabic numerals are the ten numerical digit A numerical digit (often shortened to just digit) is a single symbol used alone (such as "2") or in combinations (such as "25"), to represent numbers in a Positional notation, positional numeral sy ...

Arabic numerals
(other text is used on national sides in national languages, but other text on the common side is avoided). For the denominations except the 1-, 2- and 5-cent coins, the map only showed the 15 member states which were members when the euro was introduced. Beginning in 2007 or 2008 (depending on the country), the old map was replaced by a map of Europe also showing countries outside the EU like Norway, Ukraine, Belarus, Russia and Turkey. The 1-, 2- and 5-cent coins, however, keep their old design, showing a geographical map of Europe with the 15 member states of 2002 raised somewhat above the rest of the map. All common sides were designed by
Luc LuycxLuc Luycx (; born 11 April 1958) is the designer of the common side of the euro coins There are eight euro coin denominations, ranging from one cent to two euros (the euro is divided into a hundred cents). The coins first came into use in 1999. The ...
. The coins also have a ''national side'' showing an image specifically chosen by the country that issued the coin. Euro coins from any member state may be freely used in any nation that has adopted the euro. The coins are issued in denominations of €2, €1,
50c 50 cents is a Coin, coinage value in many systems using Decimalisation, decimal currencies. Examples include: * Australian fifty-cent coin * 50-cent piece (Canadian coin) * 50 euro cent coin * Half dollar (United States coin) * Half guilder coin (N ...
, 20c, 10c, 5c, 2c, and 1c. To avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands and Ireland (by voluntary agreement) and in Finland (by law). This practice is discouraged by the commission, as is the practice of certain shops of refusing to accept high-value euro notes.
Commemorative coins Commemorative coins are coins issued to commemorate some particular event or issue with a distinct design with reference to the occasion on which they were issued. Many coins of this category serve as collectors items only, although some countries ...
with €2 face value have been issued with changes to the design of the national side of the coin. These include both commonly issued coins, such as the €2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, and nationally issued coins, such as the coin to commemorate the
2004 Summer Olympics The 2004 Summer Olympics ( ell, Θερινοί Ολυμπιακοί Αγώνες 2004, link=no, ), officially known as the Games of the XXVIII Olympiad and commonly known as Athens 2004 ( ell, ΑΘΗΝΑ 2004, link=no, ), was an international ...
issued by Greece. These coins are legal tender throughout the eurozone. Collector coins with various other denominations have been issued as well, but these are not intended for general circulation, and they are legal tender only in the member state that issued them. The design for the
euro banknotes The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

euro banknotes
has common designs on both sides. The design was created by the Austrian designer
Robert Kalina Robert Kalina (born 29 June 1955) is an Austrian designer. For the National Bank of Austria he created the T 382 design, which was the winning design of the 1996 competition for the art shown on the euro banknotes The euro (currency symbol ...
. Notes are issued in €500, €200, €100, €50, €20, €10, €5. Each banknote has its own colour and is dedicated to an artistic period of European architecture. The front of the note features windows or gateways while the back has bridges, symbolising links between states in the union and with the future. While the designs are supposed to be devoid of any identifiable characteristics, the initial designs by
Robert Kalina Robert Kalina (born 29 June 1955) is an Austrian designer. For the National Bank of Austria he created the T 382 design, which was the winning design of the 1996 competition for the art shown on the euro banknotes The euro (currency symbol ...
were of specific bridges, including the
Rialto Image:Rialto Bridge at night2.jpg, The Rialto Bridge The Rialto is a central area of Venice, Italy, in the ''sestiere'' of San Polo. It is, and has been for many centuries, the financial and commercial heart of the city. Rialto is known for its pro ...

Rialto
and the
Pont de Neuilly The Pont de Neuilly (English: Bridge of Neuilly) is a road and rail bridge carrying the Route nationale 13 (N13) and Paris Métro Line 1 which crosses the Seine ) , mouth_location = Le Havre Le Havre (, ; nrf, Lé Hâvre) is an urban ...
, and were subsequently rendered more generic; the final designs still bear very close similarities to their specific prototypes; thus they are not truly generic. The monuments looked similar enough to different national monuments to please everyone. The Europa series, or second series, consists of six denominations and no longer includes the €500 with issuance discontinued as of 27 April 2019. However, both the first and the second series of euro banknotes, including the €500, remain legal tender throughout the euro area. In December 2021, the ECB announced it plans to redesign euro banknotes by 2024. A theme advisory group, made up of one member from each euro area country, was selected to submit theme proposals to the ECB. The proposals will be voted on by the public; a design competition will also be held.


Payments clearing, electronic funds transfer

Capital within the EU may be transferred in any amount from one state to another. All intra-Union transfers in euro are treated as domestic transactions and bear the corresponding domestic transfer costs. This includes all member states of the EU, even those outside the eurozone providing the transactions are carried out in euro. Credit/debit card charging and ATM withdrawals within the eurozone are also treated as domestic transactions; however paper-based payment orders, like cheques, have not been standardised so these are still domestic-based. The ECB has also set up a clearing system,
TARGET TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlementReal-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money Image:National ...

TARGET
, for large euro transactions.


Currency sign

A special (€) was designed after a public survey had narrowed the original ten proposals down to two. The
European Commission The European Commission (EC) is the executive branch The executive is the branch of government exercising authority in and holding Moral responsibility, responsibility for the governance of a State (polity), state. The executive executes a ...

European Commission
then chose the design created by the Belgian Alain Billiet. Of the symbol, the Commission stated The European Commission also specified a euro logo with exact proportions and foreground and background colour tones. Placement of the currency sign relative to the numeric amount varies from state to state, but for texts in English the symbol (or the
ISO The International Organization for Standardization (ISO ) is an international standard An international standard is a technical standard A technical standard is an established norm (social), norm or requirement for a repeatable technical task w ...
-standard "EUR") should precede the amount.


History


Introduction

The euro was established by the provisions in the 1992
Maastricht Treaty The Treaty on European Union, commonly known as the Maastricht Treaty, is the foundation treaty of the European Union (EU). Concluded in 1992 between the then-twelve Member state of the European Union, member states of the European Communities, ...
. To participate in the currency, member states are meant to meet strict criteria, such as a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP (both of which were ultimately widely flouted after introduction), low inflation, and
interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

interest
rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions per their request from moving to the stage of monetary union which resulted in the introduction of the euro. The name "euro" was officially adopted in
Madrid Madrid ( , ) is the capital and most populous city of Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = , national_anthem = , image_ ...

Madrid
on 16 December 1995. Belgian
Esperantist An Esperantist ( eo, esperantisto) is a person who speaks, reads or writes Esperanto Esperanto ( or ) is the world's most widely spoken constructed international auxiliary language An international auxiliary language (sometimes abbreviated ...
, a former teacher of French and history is credited with naming the new currency by sending a letter to then
President of the European Commission The president of the European Commission is the head of the European Commission The European Commission (EC) is the executive branch The executive is the branch of government exercising authority in and holding Moral responsibility, ...
,
Jacques Santer Jacques Santer (born 18 May 1937) is a Luxembourg politician who served as the 9th President of the European Commission from 1995 to 1999. He served as Finance Minister of Luxembourg from 1979 until 1989, and the 20th Prime Minister of Luxem ...

Jacques Santer
, suggesting the name "euro" on 4 August 1995. Due to differences in national conventions for
rounding Rounding means replacing a number A number is a mathematical object A mathematical object is an abstract concept arising in mathematics. In the usual language of mathematics, an ''object'' is anything that has been (or could be) formally d ...

rounding
and significant digits, all conversion between the national currencies had to be carried out using the process of
triangulation In trigonometry Trigonometry (from Greek '' trigōnon'', "triangle" and '' metron'', "measure") is a branch of mathematics Mathematics (from Ancient Greek, Greek: ) includes the study of such topics as quantity (number theory), mathe ...
via the euro. The ''definitive'' values of one euro in terms of the
exchange rate In finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, ...
s at which the currency entered the euro are shown on the right. The rates were determined by the
Council of the European Union A council is a group of people who come together to consult, deliberate, or make decisions. A council may function as a legislature A legislature is an assembly Assembly may refer to: Organisations and meetings * Deliberative assembly A ...

Council of the European Union
,by means of Council Regulation 2866/98 (EC) of 31 December 1998. based on a recommendation from the European Commission based on the market rates on 31 December 1998. They were set so that one
European Currency Unit The European Currency Unit (, ; ₠, ECU, or XEU) was a unit of account used by European Economic Community The European Economic Community (EEC) was a regional organization that aimed to bring about economic integration among its membe ...
(ECU) would equal one euro. The European Currency Unit was an accounting unit used by the EU, based on the currencies of the member states; it was not a currency in its own right. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the
pound sterling The pound sterling (symbol: £; ISO code: GBP), known in some contexts simply as the pound or sterling, is the official currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the ...
) that day. The procedure used to fix the conversion rate between the
Greek drachma The drachma ( el, wikt:δραχμή, δραχμή , ; pl. ''drachmae'' or ''drachmas'') was the currency used in Greece during several periods in its history: # An Ancient Greece, ancient Greek currency unit issued by many Greek city states dur ...
and the euro was different since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand.by Council Regulation 1478/2000 (EC) of 19 June 2000 The currency was introduced in non-physical form (
traveller's cheque A traveller's cheque is a medium of exchange Medium of exchange is a term in economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution ...
s, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the eurozone) ceased to exist independently. Their exchange rates were locked at fixed rates against each other. The euro thus became the successor to the
European Currency Unit The European Currency Unit (, ; ₠, ECU, or XEU) was a unit of account used by European Economic Community The European Economic Community (EEC) was a regional organization that aimed to bring about economic integration among its membe ...
(ECU). The notes and coins for the old currencies, however, continued to be used as
legal tender Legal tender is a form of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 1 ...
until new euro notes and coins were introduced on 1 January 2002. The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany, where the
mark Mark may refer to: Currency * Bosnia and Herzegovina convertible mark The Bosnia and Herzegovina convertible mark (Bosnian Bosnian may refer to: *Anything related to the state of Bosnia and Herzegovina or its inhabitants *Anything related to Bo ...

mark
officially ceased to be legal tender on 31 December 2001, though the exchange period lasted for two months more. Even after the old currencies ceased to be legal tender, they continued to be accepted by national central banks for periods ranging from several years to indefinitely (the latter for Austria, Germany, Ireland, Estonia and Latvia in banknotes and coins, and for Belgium, Luxembourg, Slovenia and Slovakia in banknotes only). The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.


Eurozone crisis

Following the U.S. financial crisis in 2008, fears of a
sovereign debt crisis A sovereign default is the failure or refusal of the government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, gov ...
developed in 2009 among investors concerning some European states, with the situation becoming particularly tense in early 2010.
Greece Greece ( el, Ελλάδα, Elláda, ), officially the Hellenic Republic, is a country located in Southeastern Europe Southeast Europe or Southeastern Europe () is a geographical subregion A subregion is a part of a larger region In geogr ...
was most acutely affected, but fellow Eurozone members
Cyprus Cyprus ; tr, Kıbrıs (), officially called the Republic of Cyprus,, , lit: Republic of Cyprus is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or poli ...
,
Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic. It is separated from Great Britain to its east by the North Channel (Great Britain and Ireland), North Channel, the Irish Sea ...
,
Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of a peninsula delimited by the Alps The Alps ; german: Alpen ; it, Alpi ; rm, Alps; sl, Alpe ) are the highest ...
,
Portugal Portugal, officially the Portuguese Republic ( pt, República Portuguesa, links=yes ), is a country A country is a distinct territorial body or political entity A polity is an identifiable political entity—any group of people who ...
, and
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = , national_anthem = , image_map = , map_caption = , image_map2 ...
were also significantly affected. All these countries utilized EU funds except Italy, which is a major donor to the EFSF. To be included in the eurozone, countries had to fulfil certain
convergence criteria The euro convergence criteria (also known as the Maastricht criteria) are the criteria which European Union The European Union (EU) is a political and economic union of Member state of the European Union, member states that are located ...
, but the meaningfulness of such criteria was diminished by the fact it was not enforced with the same level of strictness among countries. According to the
Economist Intelligence Unit The Economist Intelligence Unit (EIU) is the research and analysis division of the Economist Group The Economist Group (legally The Economist Newspaper Limited) is a media company headquartered in London London is the capital city, capita ...

Economist Intelligence Unit
in 2011, " the uro areais treated as a single entity, its conomic and fiscalposition looks no worse and in some respects, rather better than that of the US or the UK" and the budget deficit for the euro area as a whole is much lower and the euro area's government debt/GDP ratio of 86% in 2010 was about the same level as that of the United States. "Moreover", they write, "private-sector indebtedness across the euro area as a whole is markedly lower than in the highly leveraged
Anglo-Saxon The Anglo-Saxons were a cultural group Cultural identity is a part of a person's identity Identity may refer to: Social sciences * Identity (social science), personhood or group affiliation in psychology and sociology Group expression ...
economies". The authors conclude that the crisis "is as much political as economic" and the result of the fact that the euro area lacks the support of "institutional
paraphernalia Paraphernalia most commonly refers to a group of apparatus, equipment, or furnishing used for a particular activity. For example, an avid sports fan may cover his walls with football and/or basketball paraphernalia. Historical legal term In leg ...
(and mutual bonds of solidarity) of a state". The crisis continued with S&P downgrading the credit rating of nine euro-area countries, including France, then downgrading the entire
European Financial Stability Facility The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the eurozone The eurozone, officially called the euro area, is a monetary union of 19 Member state of the European Union, member states of ...
(EFSF) fund. A historical parallel – to 1931 when Germany was burdened with debt, unemployment and austerity while France and the United States were relatively strong creditors – gained attention in summer 2012 even as Germany received a debt-rating warning of its own. In the enduring of this scenario the euro serves as a mean of quantitative primitive accumulation.


Direct and indirect usage


Direct usage

The euro is the sole currency of 19
EU member states The European Union (EU) consists of 27 member states which are signatories to the Treaties of the European Union, founding treaties of the union and thereby shares in the privileges and obligations of membership. They have agreed by the treatie ...

EU member states
: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. These countries constitute the "
eurozone The eurozone, officially called the euro area, is a monetary union of 19 Member state of the European Union, member states of the European Union (EU) that have adopted the euro (euro sign, €) as their primary currency and sole legal tender. T ...

eurozone
", some 343 million people in total . With all but one (Denmark) EU members obliged to join when economic conditions permit, together with future members of the EU, the
enlargement of the eurozone The enlargement of the eurozone is an ongoing process within the European Union (EU). All member states of the European Union, except Denmark which negotiated opt-outs from the provisions, are obliged to adopt the euro as their sole currency onc ...
is set to continue. Outside the EU, the euro is also the sole currency of Montenegro and Kosovo and several
European microstates The European microstates or European ministates are a set of very small sovereign state A sovereign state is a political entity that is represented by one centralized government that has sovereignty over a geographic area. International law de ...
(Andorra, Monaco, San Marino and the Vatican City) as well as in three
overseas territories of France Overseas France (french: France d'outre-mer, ''l'Outre-mer'', or colloquially ''les DOM-TOM'') consists of all the French-administered territories outside Europe Europe is a continent A continent is one of several large landmass ...

overseas territories of France
that are not themselves part of the EU, namely
Saint Barthélemy Saint Barthélemy (french: Saint-Barthélemy, ), officially the , is an overseas collectivity The French overseas collectivities ('' collectivité d'outre-mer'' or ''COM''), are first-order administrative divisions of France, like the F ...
,
Saint Pierre and Miquelon Saint Pierre and Miquelon (), officially the Territorial Collectivity of Saint-Pierre and Miquelon (french: link=no, Collectivité territoriale de Saint-Pierre et Miquelon ), is a self-governing territorial overseas collectivity The France, ...

Saint Pierre and Miquelon
, and the French Southern and Antarctic Lands. Together this direct usage of the euro outside the EU affects nearly 3 million people. The euro has been used as a trading currency in Cuba since 1998, Syria since 2006, and Venezuela since 2018. There are also various currencies pegged to the euro (see below). In 2009, Zimbabwe abandoned its
local currency In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
and used major currencies instead, including the euro and the United States dollar.


Use as reserve currency

Since its introduction, the euro has been the second most widely held international
reserve currency A reserve currency (or anchor currency) is a foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a ...
after the U.S. dollar. The share of the euro as a reserve currency increased from 18% in 1999 to 27% in 2008. Over this period, the share held in U.S. dollar fell from 71% to 64% and that held in RMB fell from 6.4% to 3.3%. The euro inherited and built on the status of the
Deutsche Mark The Deutsche Mark (, "German mark"), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it is commonly call ...

Deutsche Mark
as the second most important reserve currency. The euro remains underweight as a reserve currency in advanced economies while overweight in emerging and developing economies: according to the
International Monetary Fund The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument The ...

International Monetary Fund
the total of euros held as a reserve in the world at the end of 2008 was equal to $1.1 trillion or €850 billion, with a share of 22% of all currency reserves in advanced economies, but a total of 31% of all currency reserves in emerging and developing economies. The possibility of the euro becoming the first international reserve currency has been debated among economists. Former
Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the and of a or formal monetary union, and ove ...

Federal Reserve
Chairman
Alan Greenspan Alan Greenspan (; born March 6, 1926) is an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economi ...

Alan Greenspan
gave his opinion in September 2007 that it was "absolutely conceivable that the euro will replace the US dollar as reserve currency, or will be traded as an equally important reserve currency". In contrast to Greenspan's 2007 assessment, the euro's increase in the share of the worldwide currency reserve basket has slowed considerably since 2007 and since the beginning of the worldwide
credit crunch A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cru ...
related recession and
European sovereign-debt crisis The European debt crisis (often also referred to as the eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union The European Union (EU) is a political and econ ...
.


Currencies pegged to the euro

Outside the eurozone, a total of 22 countries and territories that do not belong to the EU have currencies that are directly pegged to the euro including 14 countries in mainland Africa (
CFA franc The CFA franc (french: franc CFA, , Franc of the Financial Community of Africa, originally Franc of the French Colonies in Africa, or colloquially ) is the name of two currencies A currency, "in circulation", from la, currens, -entis, liter ...
), two African island countries (
Comorian franc The franc (french: link=no, franc comorien; ar, فرنك قمري; sign: CF; ISO 4217 ISO 4217 is a standard Standard may refer to: Flags * Colours, standards and guidons * Standard (flag), a type of flag used for personal identification ...
and
Cape Verdean escudo The escudo (sign A sign is an object Object may refer to: General meanings * Object (philosophy), a thing, being, or concept ** Entity, something that is tangible and within the grasp of the senses ** Object (abstract), an object wh ...
), three French Pacific territories (
CFP franc The CFP franc (called the ''franc'' in everyday use) is the currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jp ...
) and three Balkan countries, Bosnia and Herzegovina (
Bosnia and Herzegovina convertible mark The Bosnia and Herzegovina convertible mark (Bosnian Bosnian may refer to: *Anything related to the state of Bosnia and Herzegovina or its inhabitants *Anything related to Bosnia (region) or its inhabitants * Bosniaks, an ethnic group mainly inhab ...
), Bulgaria (
Bulgarian lev The lev ( bg, лев, plural: / , ; ISO 4217 code: BGN; numeric code: 975) is the currency of Bulgaria. In old Bulgarian the word "lev" meant "lion", the word 'lion' in the modern language is ''luv'' (; in Bulgarian: ). The lev is divided in 100 '' ...
) and North Macedonia (
Macedonian denar The Macedonian denar ( mk, денар; paucal: denari / денари; sign: den, code: MKD) is the currency of North Macedonia North Macedonia, ; sq, Maqedonia e Veriut, (Macedonia until February 2019), officially the Republic of North ...
). On 28 July 2009,
São Tomé and Príncipe São Tomé and Príncipe (; ; English: Saint Thomas and Prince), officially the Democratic Republic of São Tomé and Príncipe ( pt, República Democrática de São Tomé e Príncipe), is an island country An island country or an island n ...

São Tomé and Príncipe
signed an agreement with Portugal which will eventually tie its currency to the euro. Additionally, the
Moroccan dirham The Moroccan dirham ( ar, درهم, translit=dirham, ary, درهم, translit=darhem; ber, ⴰⴷⵔⵀⵎ, translit=adrhm; sign: DH; code: MAD) is the official monetary currency A currency, "in circulation", from la, currens, -entis, litera ...
is tied to a basket of currencies, including the euro and the US dollar, with the euro given the highest weighting. With the exception of Bosnia, Bulgaria, North Macedonia (which had pegged their currencies against the Deutsche Mark) and Cape Verde (formerly pegged to the Portuguese escudo), all of these non-EU countries had a currency peg to the French Franc before pegging their currencies to the euro. Pegging a country's currency to a major currency is regarded as a safety measure, especially for currencies of areas with weak economies, as the euro is seen as a stable currency, prevents runaway inflation and encourages foreign investment due to its stability. Within the EU several currencies are pegged to the euro, mostly as a precondition to joining the eurozone. The
Danish krone The krone (; plural: ''kroner''; sign A sign is an object Object may refer to: General meanings * Object (philosophy), a thing, being, or concept ** Entity, something that is tangible and within the grasp of the senses ** Object (abs ...
,
Croatian kuna The kuna is the currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the pl ...
and
Bulgarian lev The lev ( bg, лев, plural: / , ; ISO 4217 code: BGN; numeric code: 975) is the currency of Bulgaria. In old Bulgarian the word "lev" meant "lion", the word 'lion' in the modern language is ''luv'' (; in Bulgarian: ). The lev is divided in 100 '' ...
are pegged due to their participation in the
ERM II The European Exchange Rate Mechanism (ERM) II is a system introduced by the European Economic Community The European Economic Community (EEC) was a regional organization and Turkey Turkey ( tr, Türkiye ), officially the Republi ...
. In total, , 182 million people in Africa use a currency pegged to the euro, 27 million people outside the eurozone in Europe, and another 545,000 people on Pacific islands. Since 2005, stamps issued by the
Sovereign Military Order of Malta The Sovereign Military Order of Malta (SMOM), officially the Sovereign Military Hospitaller Order of Saint John of Jerusalem, of Rhodes and of Malta ( it, Sovrano Militare Ordine Ospedaliero di San Giovanni di Gerusalemme di Rodi e di Malta; ...
have been denominated in euros, although the Order's official currency remains the
Maltese scudo The scudo (plural ''scudi'') is the official currency of the Sovereign Military Order of Malta The Sovereign Military Order of Malta (SMOM), officially the Sovereign Military Hospitaller Order of Saint John of Jerusalem, of Rhodes and of Malt ...
.Retrieved 3 October 2017.
/ref> The Maltese scudo itself is pegged to the euro and is only recognised as legal tender within the Order.


Economics


Optimal currency area

In economics, an optimum currency area, or region (OCA or OCR), is a geographical region in which it would maximise economic efficiency to have the entire region share a single currency. There are two models, both proposed by
Robert Mundell Robert Alexander Mundell (October 24, 1932 – April 4, 2021) was a Canadian economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories ...

Robert Mundell
: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro. However, even before the creation of the single currency, there were concerns over diverging economies. Before the
late-2000s recession The Great Recession was a period of marked general decline (recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (e ...
it was considered unlikely that a state would leave the euro or the whole zone would collapse. However the
Greek government-debt crisis Greece faced a sovereign debt crisis in the aftermath of the financial crisis of 2007–08. Widely known in the country as The Crisis (Greek language, Greek: Η Κρίση), it reached the populace as a series of sudden reforms and austerity mea ...
led to former
British Foreign Secretary The secretary of state for foreign, Commonwealth and development affairs, commonly known as the foreign secretary, is a senior minister of the Crown within the Government of the United Kingdom, and head of the Foreign, Commonwealth and Devel ...
Jack Straw John Whitaker Straw (born 3 August 1946) is a British politician who served as the Member of Parliament (United Kingdom), Member of Parliament (MP) for Blackburn (UK Parliament constituency), Blackburn from 1979 United Kingdom general election, ...

Jack Straw
claiming the eurozone could not last in its current form. Part of the problem seems to be the rules that were created when the euro was set up. John Lanchester, writing for ''
The New Yorker ''The New Yorker'' is an American weekly magazine featuring journalism Journalism is the production and distribution of report Image:Hurt Report cover page.png, 220px, Example of a front page of a report A report is a document that pr ...

The New Yorker
'', explains it:


Transaction costs and risks

The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g.,
credit card #REDIRECT Credit card #REDIRECT Credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's promise to the card issuer to pay them for ...

credit card
s,
debit card A debit card (also known as a bank card, plastic card or check card) is a payment card that can be used in place of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase must be in the cardho ...
s and
cash machine An automated teller machine (ATM) or cash machine (in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History ...
withdrawals). Financial markets on the continent are expected to be far more
liquid A liquid is a nearly incompressible In fluid mechanics Fluid mechanics is the branch of physics concerned with the mechanics Mechanics (Ancient Greek, Greek: ) is the area of physics concerned with the motions of physical objects, ...
and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone. However, although transaction costs were reduced, some studies have shown that
risk aversion In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies ...

risk aversion
has increased during the last 40 years in the Eurozone.


Price parity

Another effect of the common European currency is that differences in prices—in particular in price levels—should decrease because of the
law of one price The law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices ...
. Differences in prices can trigger
arbitrage In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...
, i.e., speculative trade in a
commodity In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plan ...
across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific eurozone markets.


Macroeconomic stability

Before the introduction of the euro, some countries had successfully contained inflation, which was then seen as a major economic problem, by establishing largely independent central banks. One such bank was the
Bundesbank The Deutsche Bundesbank (), literally "German Federal Bank", is the central bank of the Germany, Federal Republic of Germany and as such part of the European System of Central Banks (ESCB). Due to its strength and former size, the Bundesbank is t ...

Bundesbank
in Germany; the European Central Bank was modelled on the Bundesbank. The euro has come under criticism due to its regulation, lack of flexibility and rigidity towards sharing member States on issues such as nominal interest rates. Many national and corporate bonds denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in national currencies. While increased liquidity may lower the
nominal interest rateIn finance and economics, the nominal interest rate or nominal rate of interest is either of two distinct things: # the rate of interest In finance Finance is the study of financial institutions, financial markets and how they operate within ...
on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role. A credible commitment to low levels of inflation and a stable debt reduces the risk that the value of the debt will be eroded by higher levels of inflation or default in the future, allowing debt to be issued at a lower nominal interest rate. Unfortunately, there is also a cost in structurally keeping inflation lower than in the United States, UK, and China. The result is that seen from those countries, the euro has become expensive, making European products increasingly expensive for its largest importers; hence export from the eurozone becomes more difficult. In general, those in Europe who own large amounts of euros are served by high stability and low inflation. A
monetary union A currency union (also known as monetary union) is an intergovernmental agreement that involves two or more states sharing the same currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" ...
means states in that union lose the main mechanism of recovery of their international
competitiveness In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
by weakening ( depreciating) their currency. When
wage A wage is the distribution from an employer of a ''security'' (expected return or profits derived solely from others) paid to an employee. Like interest is paid out to an investor on his investments, a wage is paid (from company earnings) to t ...

wage
s become too high compared to
productivity Productivity is the efficiency Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do th ...
in exports sector then these exports become more expensive and they are crowded out from the market within a country and abroad. This drive fall of employment and output in the exports sector and fall of
trade Trade involves the transfer of goods from one person or entity to another, often in exchange for money. Economists refer to a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of r ...
and current account balances. Fall of output and employment in tradable goods sector may be offset by the growth of non-exports sectors, especially in
construction Construction is a general term meaning the and to form , , or ,"Construction" def. 1.a. 1.b. and 1.c. ''Oxford English Dictionary'' Second Edition on CD-ROM (v. 4.0) Oxford University Press 2009 and comes from ''constructio'' (from ''com-' ...

construction
and
services Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of Faculty (academic staff), university faculty * Civil service, the body of employees of a governm ...
. Increased purchases abroad and negative current account balance can be financed without a problem as long as
credit px, Domestic credit to private sector in 2005 Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, k ...
is cheap. The need to finance trade deficit weakens currency making exports automatically more attractive in a country and abroad. A state in a monetary union cannot use weakening of currency to recover its international competitiveness. To achieve this a state has to reduce prices, including wages (
deflation In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...

deflation
). This could result in high
unemployment Unemployment, according to the OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de Coopération et de Développement Économiques, OCDE) is an intergovernmental economic organisation with 38&nbs ...
and lower incomes as it was during
European sovereign-debt crisis The European debt crisis (often also referred to as the eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union The European Union (EU) is a political and econ ...
.


Trade

The euro increased price transparency and stimulated cross-border trade. A 2009 consensus from the studies of the introduction of the euro concluded that it has increased trade within the eurozone by 5% to 10%, although one study suggested an increase of only 3% while another estimated 9 to 14%. However, a
meta-analysis A meta-analysis is a statistical analysis that combines the results of multiple Randomized controlled trial, scientific studies. Meta-analyses can be performed when there are multiple scientific studies addressing the same question, with each i ...
of all available studies suggests that the prevalence of positive estimates is caused by
publication bias #REDIRECT publication bias#REDIRECT publication bias Publication bias is a type of bias Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases ...
and that the underlying effect may be negligible. Although a more recent meta-analysis shows that publication bias decreases over time and that there are positive trade effects from the introduction of the euro, as long as results from before 2010 are taken into account. This may be because of the inclusion of the
Financial crisis of 2007–2008 The financial crisis of 2007–2008, or global financial crisis (GFC), was a severe worldwide economic crisis An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and t ...
and ongoing integration within the EU. Furthermore, older studies accounting for time trend reflecting general cohesion policies in Europe that started before, and continue after implementing the common currency find no effect on trade. These results suggest that other policies aimed at European integration might be the source of observed increase in trade. According to Barry Eichengreen, studies disagree on the magnitude of the effect of the euro on trade, but they agree that it did have an effect.


Investment

Physical investment seems to have increased by 5% in the eurozone due to the introduction. Regarding foreign direct investment, a study found that the intra-eurozone FDI stocks have increased by about 20% during the first four years of the EMU. Concerning the effect on corporate investment, there is evidence that the introduction of the euro has resulted in an increase in investment rates and that it has made it easier for firms to access financing in Europe. The euro has most specifically stimulated investment in companies that come from countries that previously had weak currencies. A study found that the introduction of the euro accounts for 22% of the investment rate after 1998 in countries that previously had a weak currency.


Inflation

The introduction of the euro has led to extensive discussion about its possible effect on inflation. In the short term, there was a widespread impression in the population of the eurozone that the introduction of the euro had led to an increase in prices, but this impression was not confirmed by general indices of inflation and other studies. A study of this paradox found that this was due to an asymmetric effect of the introduction of the euro on prices: while it had no effect on most goods, it had an effect on cheap goods which have seen their price round up after the introduction of the euro. The study found that consumers based their beliefs on inflation of those cheap goods which are frequently purchased. It has also been suggested that the jump in small prices may be because prior to the introduction, retailers made fewer upward adjustments and waited for the introduction of the euro to do so.


Exchange rate risk

One of the advantages of the adoption of a common currency is the reduction of the risk associated with changes in currency exchange rates. It has been found that the introduction of the euro created "significant reductions in market risk exposures for nonfinancial firms both in and outside Europe". These reductions in market risk "were concentrated in firms domiciled in the eurozone and in non-euro firms with a high fraction of foreign sales or assets in Europe".


Financial integration

The introduction of the euro increased European financial integration, which helped stimulate growth of a European
securities market Security market is a component of the wider financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs In economics Economics () is the social science that st ...
(bond markets are characterized by
economies of scale In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis ...

economies of scale
dynamics). According to a study on this question, it has "significantly reshaped the European financial system, especially with respect to the securities markets ..However, the real and policy barriers to integration in the retail and corporate banking sectors remain significant, even if the wholesale end of banking has been largely integrated." Specifically, the euro has significantly decreased the cost of trade in bonds, equity, and banking assets within the eurozone. On a global level, there is evidence that the introduction of the euro has led to an integration in terms of investment in bond portfolios, with eurozone countries lending and borrowing more between each other than with other countries. Financial integration made it cheaper for European companies to borrow. Banks, firms and households could also invest more easily outside of their own country, thus creating greater international risk-sharing.


Effect on interest rates

As of January 2014, and since the introduction of the euro, interest rates of most member countries (particularly those with a weak currency) have decreased. Some of these countries had the most serious sovereign financing problems. The effect of declining interest rates, combined with excess liquidity continually provided by the ECB, made it easier for banks within the countries in which interest rates fell the most, and their linked sovereigns, to borrow significant amounts (above the 3% of GDP budget deficit imposed on the eurozone initially) and significantly inflate their public and private debt levels. Following the
financial crisis of 2007–2008 The financial crisis of 2007–2008, or global financial crisis (GFC), was a severe worldwide economic crisis An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and t ...
, governments in these countries found it necessary to bail out or nationalise their privately held banks to prevent systemic failure of the banking system when underlying hard or financial asset values were found to be grossly inflated and sometimes so near worthless there was no liquid market for them. This further increased the already high levels of public debt to a level the markets began to consider unsustainable, via increasing government bond interest rates, producing the ongoing European sovereign-debt crisis.


Price convergence

The evidence on the convergence of prices in the eurozone with the introduction of the euro is mixed. Several studies failed to find any evidence of convergence following the introduction of the euro after a phase of convergence in the early 1990s. Other studies have found evidence of price convergence, in particular for cars. A possible reason for the divergence between the different studies is that the processes of convergence may not have been linear, slowing down substantially between 2000 and 2003, and resurfacing after 2003 as suggested by a recent study (2009).


Tourism

A study suggests that the introduction of the euro has had a positive effect on the amount of tourist travel within the EMU, with an increase of 6.5%.


Exchange rates


Flexible exchange rates

The ECB targets
interest rate An interest rate is the amount of interest In and , interest is payment from a or deposit-taking financial institution to a or depositor of an amount above repayment of the (that is, the amount borrowed), at a particular rate. It is disti ...
s rather than
exchange rate In finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, ...
s and in general, does not intervene on the foreign exchange rate markets. This is because of the implications of the
Mundell–Fleming model The Mundell–Fleming model, also known as the IS-LM-BoP model (or IS-LM-BP model), is an economics, economic model first set forth (independently) by Robert Mundell and Marcus Fleming. Reprinted in Reprinted in The model is an extension of the I ...
, which implies a central bank cannot (without
capital control Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital market 200px, The trading floor of the New York Stock Exchange, on ...
s) maintain interest rate and exchange rate targets simultaneously, because increasing the
money supply In macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is a social science Social science is the Branches of science, branch of science dev ...
results in a
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
of the currency. In the years following the
Single European Act The Single European Act (SEA) was the first major revision of the 1957 Treaty of Rome The Treaty of Rome, or EEC Treaty (officially the Treaty establishing the European Economic Community), brought about the creation of the European Economi ...
, the EU has liberalised its capital markets and, as the ECB has
inflation targeting Inflation targeting is a monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their sh ...
as its
monetary policy Monetary policy is the policy adopted by the monetary authority In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation targeting, infla ...

monetary policy
, the exchange-rate regime of the euro is floating.


Against other major currencies

The euro is the second-most widely held
reserve currency A reserve currency (or anchor currency) is a foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a ...
after the U.S. dollar. After its introduction on 4 January 1999 its exchange rate against the other major currencies fell reaching its lowest exchange rates in 2000 (3 May vs
Pound sterling The pound sterling (symbol: £; ISO code: GBP), known in some contexts simply as the pound or sterling, is the official currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the ...
, 25 October vs the
U.S. dollar The United States dollar (symbol A symbol is a mark, sign, or word that indicates, signifies, or is understood as representing an idea, Object (philosophy), object, or wikt:relationship, relationship. Symbols allow people to go beyond wha ...
, 26 October vs
Japanese yen The is the official currency of Japan. It is the third most traded currency in the foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation ...
). Afterwards it regained and its exchange rate reached its historical highest point in 2008 (15 July vs U.S. dollar, 23 July vs Japanese yen, 29 December vs Pound sterling). With the advent of the global financial crisis the euro initially fell, to regain later. Despite pressure due to the
European sovereign-debt crisis The European debt crisis (often also referred to as the eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union The European Union (EU) is a political and econ ...
the euro remained stable. In November 2011 the euro's exchange rate index – measured against currencies of the bloc's major trading partners – was trading almost two percent higher on the year, approximately at the same level as it was before the crisis kicked off in 2007. *Current and historical exchange rates against 32 other currencies (European Central Bank):
link
'


Political considerations

Besides the economic motivations to the introduction of the euro, its creation was also partly justified as a way to foster a closer sense of joint identity between European citizens. Statements about this goal were for instance made by
Wim Duisenberg Willem Frederik "Wim" Duisenberg (; 9 July 1935 – 31 July 2005) was a Dutch politician of the Labour Party (PvdA) and economist who served as President of the European Central Bank from 1 June 1998 until 1 November 2003. Duisenberg studied ...

Wim Duisenberg
, European Central Bank Governor, in 1998,
Laurent Fabius Laurent Fabius (; born 20 August 1946) is a French politician serving as President of the Constitutional Council since 8 March 2016. A member of the Socialist Party, he previously served as Prime Minister of France from 17 July 1984 to 20 Ma ...

Laurent Fabius
, French Finance Minister, in 2000, and
Romano Prodi Romano may refer to: Food * Pecorino Romano, a hard, salty Italian cheese * Romano cheese, an American English and Canadian English term for a class of cheeses Places Italy Municipalities in the Metropolitan City of Rome, Latium * Arcinazzo Rom ...
, President of the European Commission, in 2002. However, 15 years after the introduction of the euro, a study found no evidence that it has had a positive influence on a shared sense of European identity (and no evidence that it had a negative effect either).


Linguistic issues

The formal titles of the currency are ''euro'' for the major unit and ''cent'' for the minor (one-hundredth) unit and for official use in most eurozone languages; according to the ECB, all languages should use the same spelling for the nominative singular. This may contradict normal rules for word formation in some languages, e.g., those in which there is no ''eu''
diphthong A diphthong ( ; , ), also known as a gliding vowel, is a combination of two adjacent vowel A vowel is a Syllable, syllabic speech sound pronounced without any stricture in the vocal tract. Vowels are one of the two principal classes of spe ...
. Bulgaria has negotiated an exception; ''euro'' in the Bulgarian Cyrillic alphabet is spelled as eвро (''evro'') and not eуро (''euro'') in all official documents. In the Greek script the term ευρώ (evró) is used; the Greek "cent" coins are denominated in λεπτό/ά (leptó/á). Official practice for English-language EU legislation is to use the words euro and cent as both singular and plural, although the European Commission's Directorate-General for Translation states that the plural forms ''euros'' and ''cents'' should be used in English. The word 'euro' is pronounced differently according to pronunciation rules in the individual languages applied; in Danish ['öwro], in German [ˈɔɪ̯ro], in English ['juərəu], in French [ø'ro], etc.From foreign language dictionaries.


See also

* Captain Euro * Currency union * Digital euro * List of currencies in Europe * :Currencies replaced by the euro, List of currencies replaced by the euro


Notes


References


Further reading

* * * * * *


External links


European Union – Euro

European Commission – Euro Area




{{Good article Euro, 1999 in economics Currencies introduced in 1999 Currencies introduced in 2002 Currencies of the Commonwealth of Nations Currencies of South America Currencies of the Caribbean Currencies of Zimbabwe Currencies of Finland