Introduction of the Euro (1999): Europe's Single Currency

The introduction of the euro was the largest currency changeover in history. On 1 January 1999 eleven member states of the European Union fixed their exchange rates permanently and adopted the euro as their common currency, managed by a new European Central Bank in Frankfurt. Three years later, on 1 January 2002, euro banknotes and coins replaced the franc, the mark, the lira and other national currencies in the pockets of around 300 million people.

Origins: an old idea

The dream of a single European currency is almost as old as European integration itself. The Treaty of Rome of 1957 did not provide for one, but in 1970 a committee led by Luxembourg’s prime minister Pierre Werner proposed reaching monetary union within a decade. The plan collapsed in the turmoil that followed the end of the Bretton Woods system of fixed exchange rates and the oil crisis of 1973.

European governments tried more modest steps instead. In 1972 they created the “snake”, an arrangement to limit fluctuations between their currencies. In 1979 the European Monetary System introduced the Exchange Rate Mechanism (ERM) and the European Currency Unit (ECU), a basket of member currencies used as an accounting unit. In practice the system came to revolve around the German mark and the anti-inflation policy of the Bundesbank.

The Delors Report, Maastricht and preparation

The relaunch of integration through the Single European Act of 1986, with its goal of a single market by 1992, revived interest in a common currency. Free movement of capital, many economists argued, would be hard to combine with separate national currencies and fixed exchange rates. In 1988 European leaders asked a committee chaired by Commission President Jacques Delors, made up largely of central bank governors, to plan the route.

The Delors Report of April 1989 proposed economic and monetary union (EMU) in three stages: closer coordination and free capital movement; a transition with new common institutions; and finally irrevocably fixed exchange rates and a single monetary policy. The first stage began on 1 July 1990.

Politics then accelerated the timetable. The fall of the Berlin Wall in November 1989 and the prospect of German reunification alarmed some of Germany’s partners, especially France. Historians still debate how far a deal was struck, but Chancellor Helmut Kohl’s commitment to monetary union is widely seen as part of his effort to reassure President François Mitterrand and others that a larger Germany would remain firmly anchored in Europe.

The Maastricht Treaty, signed on 7 February 1992, wrote EMU into European law. It set a deadline of 1 January 1999 at the latest for the final stage and laid down “convergence criteria” that countries had to meet:

• inflation no more than 1.5 percentage points above the three best-performing states;
• a government deficit of no more than 3 per cent of GDP;
• government debt of no more than 60 per cent of GDP, or falling towards it;
• long-term interest rates no more than 2 points above the best performers;
• two years in the ERM without serious tensions.

Germany insisted that the new central bank be independent and devoted above all to price stability, on the model of the Bundesbank. Britain and Denmark secured opt-outs.

The road to the final stage was rough. In September 1992 speculative attacks forced the British pound and the Italian lira out of the ERM, and in 1993 the permitted fluctuation bands were widened to 15 per cent to save the system. Danish voters initially rejected Maastricht in June 1992, and the French approved it by only a narrow margin in September.

Preparations went ahead nonetheless. The second stage began on 1 January 1994 with the creation of the European Monetary Institute in Frankfurt, forerunner of the central bank. At the Madrid summit in December 1995 leaders chose the name “euro”, replacing the ECU, partly because Germany disliked the French-sounding acronym. The euro sign, inspired by the Greek letter epsilon and the first letter of “Europe”, was presented in 1996. In 1997 governments agreed the Stability and Growth Pact to keep deficits under control once the currency existed.

Many countries struggled to meet the criteria and used one-off measures, such as special taxes, to bring their deficits under 3 per cent in the reference year 1997. Italy, Belgium and others had debts well above 60 per cent of GDP but were judged to be moving in the right direction.

The launch in 1999

On 2–3 May 1998 European leaders in Brussels confirmed the eleven founding members: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Greece did not yet qualify; Britain, Denmark and Sweden chose to stay out. The European Central Bank was established on 1 June 1998, with the Dutch central banker Wim Duisenberg as its first president.

On 31 December 1998 the conversion rates were fixed irrevocably. One euro equalled 1.95583 German marks, 6.55957 French francs and 1,936.27 Italian lire, for example. On 1 January 1999 the euro came into being. For the first three years it existed only as “book money”: prices could be shown in euros, bank transfers and share trading were carried out in euros, and governments issued new debt in the currency, but people still paid in cash with their old notes and coins.

The euro began trading at about 1.17 US dollars. It then weakened steadily, falling to around 0.83 dollars in October 2000; central banks intervened to support it in the autumn of that year, beginning with a coordinated intervention in September. Greece met the criteria later and joined on 1 January 2001.

The cash changeover of 2002

The physical changeover was a huge logistical operation. Billions of new banknotes and coins had to be printed and minted in advance, transported under security and distributed to banks and shops. Commonly cited ECB figures speak of about 15 billion banknotes and some 52 billion coins produced for the launch.

The banknotes, in seven denominations from 5 to 500 euros, were designed by the Austrian artist Robert Kalina. Their windows, gateways and bridges represent architectural styles from classical to modern, but none depicts a real building, so that no country was favoured. The coins share a common side, designed by Luc Luycx of Belgium, and carry a national design on the other.

At midnight on 1 January 2002 cash machines across twelve countries began dispensing euros. Within days most cash payments were made in the new currency. National notes and coins remained legal tender for a short period of dual circulation, which ended at the latest on 28 February 2002, although national central banks continued to exchange old money for years, and in some countries indefinitely.

Key people

Jacques Delors, President of the European Commission from 1985 to 1995, gave his name to the 1989 report that set out the path to monetary union.

Helmut Kohl, German chancellor from 1982 to 1998, accepted giving up the strong mark, a decision that was unpopular with many Germans.

François Mitterrand, French president from 1981 to 1995, saw a single currency as a way to share monetary power that had in practice rested with the Bundesbank.

Wim Duisenberg, the first ECB president, steered the bank through the launch and the euro’s early weakness.

Myths and facts

Myth: the euro made everything more expensive. Many shoppers believed that traders rounded prices up at the changeover, a perception summed up in the German nickname “Teuro” (from “teuer”, expensive). Eurostat found some price increases in restaurants and services, but estimated the overall effect on inflation at only about 0.1 to 0.3 percentage points.

Myth: all EU members must use the euro. Most members are legally obliged to adopt the euro once they meet the criteria, but there is no fixed deadline, and Denmark has a formal opt-out. Sweden has avoided joining by staying outside the ERM.

Consequences and legacy

The euro removed exchange-rate risk and currency conversion costs inside the eurozone, made prices easier to compare across borders and quickly became the world’s second most important reserve currency after the US dollar. Interest rates in southern European countries fell sharply towards German levels.

But the design had weaknesses. Members shared a currency and an interest rate without a common budget or banking supervision, and the fiscal rules proved hard to enforce. In 2003 France and Germany themselves breached the deficit limit without penalty. These flaws were exposed after the global financial crisis of 2008, when the eurozone crisis beginning in Greece threatened the currency’s survival and led to emergency bailouts and new institutions.

The eurozone has grown from eleven to twenty-one members. Slovenia joined in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, Lithuania in 2015, Croatia in 2023 and Bulgaria in 2026. A new series of banknotes, the Europa series, was introduced from 2013. Despite periods of crisis, no country has left the euro.

By the numbers

Timeline

• 1970, October: The Werner Report proposes monetary union within a decade.
• 1979, March: The European Monetary System and ERM begin operating.
• 1989, April: The Delors Report sets out three stages towards EMU.
• 1992, 7 February: The Maastricht Treaty is signed.
• 1995, December: The Madrid European Council names the currency the euro.
• 1998, 1 June: The European Central Bank is established.
• 1999, 1 January: The euro is launched in eleven countries.
• 2001, 1 January: Greece joins the eurozone.
• 2002, 1 January: Euro banknotes and coins enter circulation.
• 2002, 28 February: Dual circulation with national currencies ends.

Why it matters

The euro is the most ambitious monetary experiment of modern times: sovereign states voluntarily gave up their own currencies and central bank policy. It ties together the economies of hundreds of millions of Europeans and remains both a symbol of European unity and a source of continuing debate about how far that unity should go.