Euro

2008/9 Schools Wikipedia Selection. Related subjects: Currency

Euro EURO (Latin alphabet) ΕΥΡΩ (Greek alphabet) unofficial spelling variants exist ewro (Maltese) evro (Slovene)
Banknotes Coins
ISO 4217 Code	EUR (num. 978)
Official user(s)	15 EU countries, 3 others  Austria  Belgium  Cyprus  France  Finland  Germany  Greece  Ireland  Italy  Luxembourg  Malta  Netherlands  Portugal  Slovenia  Spain  Monaco  San Marino  Vatican City
Unofficial user(s)	Akrotiri and Dhekelia  Andorra Kosovo  Montenegro
Inflation	3.1%
Source	European Central Bank, January 2008
Method	HICP
Pegged by	10 currencies Bosnia & Herz. convertible mark Bulgarian lev Cape Verdean escudo Central African CFA franc CFP franc Comorian franc Danish krone (±2.25%) Estonian kroon Lithuanian litas West African CFA franc
Subunit
1/100	cent actual usage varies depending on language
Symbol	€
Plural	See Euro linguistic issues
cent	See article
Coins
Freq. used	1, 2, 5, 10, 20, 50 cent, €1, €2 unless otherwise stated as rarely used
Rarely used	1 and 2 cent (applies to Finland and The Netherlands)
Banknotes
Freq. used	€5, €10, €20, €50
Rarely used	€100, €200, €500
Central bank	European Central Bank
Website	www.ecb.eu
Printer	printers Istituto Poligrafico e Zecca dello Stato Banco de Portugal Bank of Greece Banque de France Bundesdruckerei Central Bank and Financial Services Authority of Ireland De La Rue Fábrica Nacional de Moneda y Timbre François-Charles Oberthur Giesecke & Devrient Royal Joh. Enschedé National Bank of Belgium Oesterreichische Banknoten- und Sicherheitsdruck GmbH Setec Oy
Website	websites Istituto Poligrafico e Zecca dello Stato Banco de Portugal - Imprensa Nacional / Casa da Moeda Bank of Greece Banque de France Bundesdruckerei Central Bank and Financial Services Authority of Ireland De La Rue Fábrica Nacional de Moneda y Timbre François-Charles Oberthur Giesecke & Devrient Royal Joh. Enschedé National Bank of Belgium Oesterreichische Banknoten- und Sicherheitsdruck GmbH Setec Oy

The euro ( currency sign: €; banking code: EUR) is the official currency of the European Union's Eurozone, which currently consists of 15 states (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain). It is the single currency for more than 320 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide. With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar.

The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes on 1 January 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.

The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Eurosystem (composed of the central banks of the euro zone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Eurosystem participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the Eurozone payment systems.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves. Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria. In addition, several small European states (Vatican City, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro, and Kosovo have adopted the euro unilaterally, while not being EU members either. Switzerland and Liechtenstein continue using the Swiss franc. (cf. #Eurozone.)

Characteristics

Payments clearing, electronic funds transfer

All intra- Eurozone transfers shall cost the same as a domestic one. This is true for retail payments, although several ECB payment methods can be used. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as if they were domestic. The ECB has not standardised paper-based payment orders, such as cheques; these are still domestic-based.

The ECB has set up a clearing system, TARGET, for large euro transactions.

The currency sign €

The official construction of the euro sign, which was specified to be printed in Pantone Yellow on a Reflex Blue background

A special euro currency sign (€) was designed after a public survey had narrowed the original ten proposals down to two. The European Commission then chose the final design. The eventual winner was a design created by the Belgian Alain Billiet. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe.

The glyph is according to the European Commission "a combination of the Greek epsilon, as a sign of the weight of European civilization; an E for Europe; and the parallel lines crossing through standing for the stability of the euro".

The European Commission also specified a euro logo with exact proportions and foreground/background colour tones. While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead.

Placement of the currency sign varies from nation to nation. There are no official standards on where to place the euro sign.

Another advantage to the final chosen symbol is that it is easily created on a typewriter lacking the euro sign, by typing a capital 'C', backspacing and overstriking it with the equal ('=') sign.

Economic and Monetary Union

History (1990–2008)

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union that was used to establish an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions from moving to the stage of monetary union which would result in the introduction of the euro.

Economists that helped create or contributed to the euro include Robert Mundell, Wim Duisenberg, Robert Tollison, Neil Dowling, Fred Arditti and Tommaso Padoa-Schioppa. (For macro-economic theory, see below.)

Yielded currencies of the Eurozone   

Currency	Abbr.	Rate	Fixed on	EMU III
Austrian schilling	ATS	13.7603	1998- 12-31	1999
Belgian franc	BEF	40.3399	1998- 12-31	1999
Dutch gulden	NLG	2.20371	1998- 12-31	1999
Finnish markka	FIM	5.94573	1998- 12-31	1999
French franc	FRF	6.55957	1998- 12-31	1999
German mark	DEM	1.95583	1998- 12-31	1999
Irish pound	IEP	0.787564	1998- 12-31	1999
Italian lira	ITL	1936.27	1998- 12-31	1999
Luxembourg franc	LUF	40.3399	1998- 12-31	1999
Portuguese escudo	PTE	200.482	1998- 12-31	1999
Spanish peseta	ESP	166.386	1998- 12-31	1999
Greek drachma	GRD	340.750	2000- 06-19	2001
Slovenian tolar	SIT	239.640	2006- 07-11	2007
Cypriot pound	CYP	0.585274	2007- 07-10	2008
Maltese lira	MTL	0.429300	2007- 07-10	2008

Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro. The definitive values in euro of these subdivisions (which represent the exchange rates at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998, so that one ECU ( European Currency Unit) 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.) Council Regulation 2866/98 (EC), of 31 December 1998, set these rates. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day.

The procedure used to fix the irrevocable conversion rate between the drachma 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, in Council Regulation 1478/2000 (EC), of 19 June 2000.

The currency was introduced in non-physical form (travellers' cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new 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; the Mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted two months. The final date was 28 February 2002, by which all national currencies ceased to be legal tender in their respective member states. However, even after the official date, they continued to be accepted by national central banks for periods ranging from several years to forever in Austria, Germany, Ireland, and Spain. 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.

On 1 January 2007, Slovenia joined the Eurozone.

On 1 January 2008, Malta and Cyprus joined the Eurozone.

Eurozone

Andorra Bulgaria Czech   Rep. Denmark E U R O Z O N E Estonia Hungary Kosovo Latvia Lithuania Monaco Mont. Poland Romania San Marino Slovakia Sweden United Kingdom Vatican       Eurozone       ERM II members       unilaterally adopted       other EU members       special adoption agreement

• The euro is the sole currency in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain. These 15 countries together are frequently referred to as the Eurozone or the euro area, or more informally "euroland" or the "eurogroup". Outside of the area covered by the map, the euro is the legal currency of the French overseas possessions of French Guiana, Réunion, Saint-Pierre et Miquelon, Guadeloupe, Martinique, Saint-Barthélemy, Saint Martin, Mayotte, and the uninhabited Clipperton Island and the French Southern and Antarctic Lands; the Portuguese autonomous regions of the Azores and Madeira; and the Spanish Canary Islands.

• By virtue of some bilateral agreements, the European microstates of Monaco, San Marino, and Vatican City mint their own euro coins on behalf of the European Central Bank. They are, however, severely limited in the total value of coins they may issue.

• Andorra, Montenegro, Kosovo, and Akrotiri and Dhekelia adopted the foreign euro as their legal currency for movement of capital and payments without participation in the ESCB or the right to mint coins. Andorra is in the process of entering a monetary agreement similar to that of the microstates above.

• Several possessions and former colonies of EU states have currencies pegged to the euro. These are French Polynesia, New Caledonia, Wallis and Futuna (the CFP franc); Cape Verde; the Comoros; and fourteen nations of Central and West Africa (the CFA franc). See Currencies related to the euro.

• Although not legal tender in Denmark and the United Kingdom, the euro is accepted in some stores throughout both countries, particularly international stores in large cities, and shops in Northern Ireland near the border with the Republic of Ireland, where the euro is the official currency. Similarly, the euro is widely accepted in Switzerland, even by official boards, such as the Swiss Railways.

Future prospects (2008–)

Pre-2004 EU members

From Greece's participation in 2001 until the EU enlargement in 2004, Denmark, Sweden and the United Kingdom were the only EU member states outside the monetary union. The situation for the three older member states also looks different from that of the newer EU members; the three countries have no clear roadmap for adopting the euro:

• Denmark negotiated a number of opt-out clauses from the Maastricht treaty after it had been rejected in a first referendum. On 28 September 2000, another referendum was held in Denmark regarding the euro resulting in a 53.2% vote against joining. However, Danish politicians have suggested that debate on abolishing the four opt-out clauses may possibly be re-opened. In addition, Denmark has pegged its krone to the euro (€1 = DKr 7.46038 ± 2.25%) as the krone remains in the ERM. Although not part of the European Union, both Greenland and the Faroe Islands use the Danish krone (the Faroes in the form of the Faroese króna), and so also fall within the ERM. Denmark will hold a new referendum by 2011.

• Sweden: Sweden is obliged to join the euro by the 1994 Act of Accession, when they meet the economic conditions. However, the krona has never been part of ERM II, rendering Sweden ineligible. In 2003, a public referendum rejected euro membership, and Sweden has no plans to adopt the euro. The EU has made it clear that it will tolerate this with respect to Sweden, thereby giving Sweden a de facto opt-out, but not those member states that joined in 2004 or 2007.

• The United Kingdom has an opt-out from eurozone membership under the Maastricht treaty and is not obliged to join the euro. While the government is in favour of membership provided the economic conditions are right (requiring that " five economic tests" be met), the general population remain opposed and the question has never been put to referendum. The United Kingdom was forced to withdraw the pound sterling from the ERM (the precursor to ERM II) on Black Wednesday ( 16 September 1992) following pressure from currency speculators, and the pound is not part of ERM II.

Post-2004 EU members

As of 2008, nine new EU member states have a currency other than the euro; however, all of these countries are required by their Accession Treaties to join the euro. Some of the following countries have already joined the European Exchange Rate Mechanism, ERM II. They and the others have set themselves the goal of joining the euro ( EMU III) as follows:

Remaining currencies on track to be migrated   

Currency	Abbr.	Rate	Conv goal
Slovak koruna	SKK	30.1260	2009- 01-01
Lithuanian litas	LTL	3.45280	2010- 01-01
Estonian kroon	EEK	15.6466	2011- 01-01
Bulgarian lev	BGN	1.95583	2012- 01-01
Polish złoty	PLN	—	2012- 01-01
Latvian lats	LVL	0.702804	2012- 01-01
Czech koruna	CZK	—	2012- 01-01
Hungarian forint	HUF	—	2012- 01-01
Romanian leu	RON	—	2014- 01-01
Swedish krona	SEK	—	—

• 1 January 2009 for Slovakia
• 1 January 2010 for Lithuania and Bulgaria
• 1 January 2011 for Estonia,
• 1 January 2012 or later for Hungary, Latvia, Czech Republic, Poland and Romania.

Too high an inflation rate postponed the entry of Lithuania and Estonia as planned on 1 January 2007. Some of these currencies do not float against the euro, and a subset of those were unilaterally pegged to the euro before joining ERM II. See European Exchange Rate Mechanism, currencies related to the euro, and individual currency articles for more details.

Originally, the Czech Republic aimed for entry into the ERM II in 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not meet the economic criteria. The new goal is 2012.

Similarly Latvia had aimed to join the euro in 2008 but inflation of over 11% has resulted in a delay as the country does not meet the current criteria. The government's official target is now 1 January 2012 although the head of the Bank of Latvia has suggested that 2013 may be a more realistic date.

The Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area stated on 16 July 2007 that only Cyprus, Malta (both of which adopted the euro in January 2008), Slovakia (2009) and Romania (2014) had currently set official target dates for adopting the euro.

Estonia, Latvia, Lithuania and Slovakia have already finalised the design for their respective coins' obverse sides.

Economics of the euro

Optimal currency areas

Economists typically cite four criteria, often called the optimum currency area (OCA) criteria, to evaluate the value of switching to a single currency. There are three economic criteria (labour and capital mobility, product diversification, and openness) and one political criterion (fiscal transfers). Since establishing a single currency over a region necessitates surrendering the ability to tailor monetary policy to local conditions, these four characteristics measure the ability of the economy to smooth local economic movements in the absence of monetary policy.

• Robert A. Mundell formulated the idea that perfect capital and labour mobility would mitigate the adverse consequences of asymmetric shocks in a currency area. While capital is quite mobile in the Eurozone, labour mobility is relatively low, especially when compared to the U.S. and Japan.

• Peter Kenen formulated the idea that widely diversified production and export structures that are similar between the areas that form the currency area lower the effect and probability of asymmetric shocks. The Eurozone scores quite well on this criterion, and monetary integration seems to further improve the diversification of production structures.

• Ronald McKinnon formulated the idea that areas which are very open to trade and trade heavily with each other form an optimum currency area. This is because the high trade intensity will lower the significance of the distinction between domestic and foreign goods as competition will equalise the prices of most goods, independently of exchange rates. The Eurozone members trade heavily with each other (intra-European trade is greater than international trade), and all evidence so far seems to indicate that the monetary union has at least doubled trade between members.

• The term " fiscal transfers" refers to the transfer of money between areas. Regions that are economically worse off or suffer from negative economic shocks receive money, creating a