Eleven European Nations Adopt the Euro Summary

  • Last updated on November 10, 2022

The introduction of the euro in 1999 was another step in the long process of European integration begun in the aftermath of World War II.

Summary of Event

The introduction of the euro as the currency of the Eurozone Eurozone (European Union members who adopted the euro) was another step in the long process of integrating Europe. Conceived by the French civil servant Jean Monnet, the European Coal and Steel Community (ECSC) was shortly followed by the Treaty of Rome in 1957, which created the European Economic Community European Economic Community (EEC). The EEC—known as the Common Market (which later became the European Community)—aimed at the gradual abolition of barriers to trade among its members through the development of common institutions such as the European Parliament. It formally became the European Union (EU) with the signing of the Maastricht Treaty Maastricht Treaty (1992) in February, 1992. Euro (currency) adoption Currency, European [kw]Eleven European Nations Adopt the Euro (Jan. 1, 1999) [kw]European Nations Adopt the Euro, Eleven (Jan. 1, 1999) [kw]Nations Adopt the Euro, Eleven European (Jan. 1, 1999) [kw]Euro, Eleven European Nations Adopt the (Jan. 1, 1999) Euro (currency) adoption Currency, European [g]Europe;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Austria;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Belgium;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Finland;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]France;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Germany;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Ireland;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Italy;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Luxembourg;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Netherlands;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Portugal;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [g]Spain;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [c]Banking and finance;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [c]Trade and commerce;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] [c]Economics;Jan. 1, 1999: Eleven European Nations Adopt the Euro[10300] Monnet, Jean Delors, Jacques Giscard d’Estaing, Valéry Schmidt,Helmut

Introduction of the euro, first as a common money of account, and subsequently with the replacement of national currencies by the euro, marked a long evolution of economic policies in the member states. During the immediate postwar years, a devastated Europe relied on the gold-backed dollar as defined in the Bretton Woods Agreement, Bretton Woods Agreement (1944) crafted by Western leaders in 1944, as its measure of value. However, the agreement fell apart in the early 1970’s and in Europe was largely replaced by the currency of the strongest economy of Europe, that of West Germany’s deutsche mark. In 1986, the members of the Common Market signed the Single European Act, which provided for the completion of the common internal market among the members by 1992. In 1988, at a meeting in Hannover, West Germany, the member countries established the Delors Committee to prepare the terms of what came to be called the Maastricht Treaty.

The Maastricht Treaty built on the foundations laid by the European Monetary System European Monetary System (EMS), established through an agreement between French president Valéry Giscard d’Estaing and West German chancellor Helmut Schmidt in 1978. The purpose of the EMS was to regulate exchange rates between the two European currencies to prevent large fluctuations that would threaten investment and trade in and between countries. Exchange rates are substantially determined by the cost of borrowing money, which is in turn controlled by the central banks of the affected currencies by setting the official interest rate. Because the German Bundesbank was the most conservative of the European central banks and because the deutsche mark was the currency most in demand, the arrangement effectively gave the Bundesbank control of the interest-rate policy of the respective European governments. It was but a further step to creating a European Central Bank (ECB), one of the major accomplishments of the Maastricht Treaty.

The Delors Report, produced by the committee headed by Jacques Delors and published in 1989, emphasized the importance of fiscal discipline on the part of the European governments. Fiscal discipline was to be accomplished by an interest-rate policy that would stress inflation control: raising interest rates when prices go up, to damp down economic activity, and lowering interest rates when economic activity declines, to make it easier for firms to borrow money. When firms expand, they hire more labor, diminishing unemployment—a major objective of most governments, because unemployment leads to political unrest. By handing over the job of establishing interest-rate policy to the ECB, European governments could insulate themselves from political pressure.

The Maastricht Treaty committed the eleven signatories (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) to subordinate their national central banks to the ECB; to adopt the new currency, the euro, as their unit of account; and to accept conservative fiscal policies. These objectives were later spelled out in the Stability and Growth Pact, signed in Amsterdam in 1997, which limited the signatories to government deficits not exceeding 3 percent of gross domestic product (GDP), limited overall government debt to 60 percent of GDP, and required all member governments to submit their government budgets to the scrutiny of the Economic and Financial Affairs Council (ECOFIN) to make sure that they met the terms. A schedule of fines to be levied on the governments of countries that failed to meet the pact’s requirements was established to motivate good behavior.

Euro bills and coins.

In 1994, the European Monetary Institute European Monetary Institute (EMI) was established in Frankfurt, Germany, to lay the groundwork for the ECB, which was formally established in June, 1998. The EMI designed the ECB’s administrative structure, which comprised two governing bodies: a governing board, consisting of the president of the ECB and five other individuals, the vice president of the bank, and four appointees named for nonrenewable eight-year terms; and a council that includes all members of the board and the governors of all of the central banks of member states. The first governing council of the ECB announced in October, 1998, that it would be guided by three objectives in setting the official interest-rate policy: controlling inflation, the appropriate amount of money in circulation, and projected future price developments. By setting such goals, the ECB made clear the paramount influence of the conservative Bundesbank, for whom controlling inflation had for decades been the overarching policy.

The Maastricht Treaty contained an opt-out clause enabling signatories of the treaty to choose not to become part of the euro currency system. Of the eleven signatories to that treaty, three opted out: Great Britain, Sweden, and Denmark, whose citizens rejected membership in a referendum vote. These countries retained their own currencies and their ability to control their interest rates. The Danes and the Swedes wished to protect the social welfare policies that their governments had adopted prior to Maastricht; the British wished to preserve the international status of the pound. The other countries, to the extent that abiding by treaties remains official policy, are locked into the system, because the treaty makes no provision for any signatory to withdraw at a later time.

Euro coins and banknotes were introduced in January, 2002, and, despite many concerns, proved to be readily accepted by the Eurozone countries. A few years after its adoption, the euro declined in value relative to the dollar, but it soon recovered and outpaced the dollar. Although some businesses complained about the restrictive policies imposed by the ECB’s conservative interest rates, and some politicians complained that the requirement of fiscal discipline prevented them from following Keynesian antidotes to high unemployment, the introduction of the euro was an unqualified success throughout Europe.

Significance

Although the EU experienced some significant growing problems, particularly the failure of the voters in France and the Netherlands to approve the first constitution drafted for the EU, the economic integration of Europe through the adoption of the euro appeared to have been a solid achievement. Even though surveys found that at best only a minority of residents of the EU thought of themselves first and foremost as Europeans, the general prosperity that accompanied the introduction of the euro suggests that creating economic integration is the best way to achieve, however gradually, that goal of Monnet—a genuinely united Europe. Euro (currency) adoption Currency, European

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Baimbridge, Mark, Brian Burkitt, and Philip Whyman, eds. The Impact of the Euro: Debating Britain’s Future. New York: St. Martin’s Press, 2000. Nine economists examine the implications of British membership in the Eurozone.
  • citation-type="booksimple"

    xlink:type="simple">Fishman, Robert M., and Anthony Messina, eds. The Year of the Euro: The Cultural, Social, and Political Import of Europe’s Common Currency. Notre Dame, Ind.: University of Notre Dame Press, 2006. Looks at the euro from the perspective of several years of operation.
  • citation-type="booksimple"

    xlink:type="simple">Martin, Andrew, and George Ross, eds. Euros and Europeans: Monetary Integration and the European Model of Society. New York: Cambridge University Press, 2004. Notes the conflict between private-sector growth stressed by the ECB policies and some of the social policies advocated by the more socialist-oriented governments of some European countries.
  • citation-type="booksimple"

    xlink:type="simple">Padoa-Schioppa, Tommaso. The Euro and Its Central Bank: Getting United After the Union. Cambridge, Mass.: MIT Press, 2004. Emphasizes the historical background of the euro.

Portugal and Spain Enter the European Community

European Economic Community Adopts the Single European Act

Sweden Applies for Membership in the European Community

Unification of the European Market

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