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.
The introduction of the euro as the currency of the Eurozone
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,
The Maastricht Treaty built on the foundations laid by the European Monetary System
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
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.
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.
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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. -
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. -
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. -
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