The Euro: A Common Currency for European Union Member States

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The euro is the common currency of many member states of the European Union. Since its introduction in January 1999, it has been perceived to lead several benefits for the member states. There has been some criticism towards the adoption of the euro. This paper traces the history of the euro, its perceived advantages and looks at the criticism directed towards it. Finally, it studies the impact of the euro on the German economy. It concludes that the euro has a mixed affect on the German economy.

An estimated fifteen members of the European Union have their official currency as the euro.

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An estimated three hundred and twenty million Europeans use this currency. The euro is estimated to affect five hundred million people with more than six hundred and ten billion euros in circulation. In terms of the combined value of cash in circulation, the euro has made significant progress against the US dollar. Initially the euro was introduced only for accounting purposes in 1999. In January 2002, the banknotes and coins of the euro were minted by the member states .

The European Central Bank and the Euro system manage the currency and sets monetary policy.

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All banknotes and coins are printed and minted by the Euro system. Some EU countries have opted not to join the euro due to economic concerns. The United Kingdom and Denmark have negotiated to be exempted from adopting the euro. Small European microstates like the Vatican City and San Marino have used the euro as their currency because they have an association with member states that have adopted the currency .

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The euro is divided into one hundred cents.

All euro coins show the value with the old fifteen members of the EU in the background. The old map is scheduled to be replaced by a map of Europe which will also include other non EU members. Each individual country has adopted its own national side with an image that is chosen by that nation. According to the European Union rules, any national euro coins can be used in countries that are using the euro as their national currency. The European Central Bank has mandated that all intra-Euro zone transfers cost the same as a domestic one.

Credit/debit card charging, ATM withdrawals, retail payments which are inside the euro zone can be charged at domestic rates. The concept of the euro has its origins in the early 1990s when the Maastricht Treaty was signed by the member states to establish a common economic and monetary system . They also introduced the concept of a single currency known as the euro. To participate in the new currency, each member state had to have a budget deficit of less than three percent.

Another condition was that their debt ration was less than sixty percent of GDP. Finally each member state was required to have low inflation and interest rates close to the EU average. The United Kingdom and Denmark were able to obtain exemptions during the introduction of the euro. The process of triangulation was used to convert the national currencies of the member states. The Council of the European Union had the power to determine the values of euro as compared with the national currencies of the member states.

It was stated that one European Currency Unit would be equal to one euro as determined by the currency exchange rates on December, 1998. The conversion rate for the Greek drachma was fixed several months before the introduction of the euro because by that time the latter was only two years old. The currency would be introduced by using travelers’ checks and electronic transfers on January 1999. Currently the national currencies of participating countries have ceased to exist as their exchange rates have been converted into non decimal subdivisions of the euro.