Updated: Nov 19
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While 19 of the 27 member states of the European Union share a common currency today, the euro changeover did not come about overnight. First sketched out in the years following the end of the Second World War (1939-1945), it would still take long decades of preparations and planning for a shared European currency to see the light of day and become a full-fleshed reality.
The idea of a monetary union began sprouting in the late 50s, when six founding states - Belgium, France, Germany, Italy, Luxembourg, and the Netherlands -, all of them democratic free-market economies, formed the EC, the European Communities, in early 1958. The very pillars onto which the European Union would later rest were laid.
The first draft of a union
Amidst the geopolitical instability engendered by the colliding of two supernations at the borders of Europe during the Cold War (1947-1991), it became a pressing issue for central European countries to aim at solidifying economic and political relations.
The first episode of the euro saga can be linked to the 1957 ratification of the treaty of Rome, which, on paper, set the goal of creating a common market to ensure economic prosperity and the further promotion of an increasingly closer union of the people of Europe. However, no common currency that could be powerful enough to outweigh the US dollar, strengthen international competitiveness, counterbalance foreign exchange operation costs, and fight against national financial instability, had yet made its way onto the treaty.
It was not until the end of 1970 and the elaboration of the Werner Plan that the European Communities seriously started envisioning monetary union. But with the Bretton Woods system coming to an end and the US dollar as the global reserve currency, the project did not go through.
The EUR: a large-scale project gaining traction
Following the European Council meeting held in Brussels, 1979 is the year of the creation of the European Monetary System (EMS) and the birth of the ECU (European Currency Unit). Although we cannot call it a proper circulating currency, this unit set out to help stabilize the exchange rates of the member states' national currencies and achieve fixed ratios through the minimizing of fluctuations.
In 1985, the European Communities approved the project of a unified European market. Step by step, plans of a European currency started falling into place. Concomitantly, the then decision-makers came to yet another agreement: the long-awaited launch of a single currency.
In 1989, the Delors Plan for economic and monetary union, structured around three distinct phases, rehashed the aborted treaty of Rome. However, it was not until the Maastricht treaty that the long theorized common currency, supervised by the establishment of the European Monetary Institute (1994), came to fruition.
The Maastricht treaty: the finalization of a longstanding project
Signed on February 7th, 1992, and entered into force on November 1st, 1993, the treaty starts with a preamble meant to summarize the common goal the union members should be committed to striving toward, in short:
Ending division and creating firm bases for a future Europe.
Safeguarding liberty, democracy, human rights, and fundamental freedoms.
Deepening international solidarity.
Consolidating institutions under a shared framework.
Strengthening the economy under a single stable currency.
Promoting economic and social progress.
Implementing a shared foreign and security policy.
Facilitating the free movement of persons within the Union.
A three-staged economic program
Following the opening pledges of the co-signers is the schedule, divided into three separate stages detailing the macroeconomic criteria to abide by:
From January 1st, 1990 to December 31st, 1993: the free movement of capital between member states.
From January 1st, 1994 to December 31st, 1998: the undertaking of the convergence of all member states' economic policies and their strengthening by limiting public deficit and debt, reducing inflation, interest rates, and stabilizing exchange rates.
From January 1st, 1999 onward: the creation and progressive introduction of a common currency, known today as the euro (EUR), supervised by a centralized bank - the European Central Bank (BCE) - tasked with the coordinating of the agreed-to monetary policies.
Which are the countries that use the euro as their national currency?
The first countries to have given up their old currency were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
Greece, Slovenia, Cyprus, Malta, Estonia, Latvia, and Lithuania followed suit respectively in 2001, 2007, 2008, 2011, 2014, and 2015.
The Czech Republic and Hungary are currently preparing to adopt the euro. Bulgaria, Croatia, Romania, and Sweden are all four committed to later utilize the euro.
Interestingly enough, six non-member states of the European Union, namely: the Principality of Andorra, the Republic of Kosovo, the Principality of Monaco, Montenegro, the Republic of San Marino, and the Vatican, use the euro as their national currency.
Despite the prevalence of the currency in Europe, things are not all rosy in the EU, as proven by the 2020 Brexit. The carefully woven economic and political fabric of the union is more than ever tearing off. To many, the euro is nothing but the mere tip of a problematic iceberg.
Migrant and Covid-19 crises: exacerbators of Euro-skepticism and separatism
The recent migrant crisis and ongoing Covid-19 pandemic have both underlined the limits and inadequacies of a centralized decisional entity calling the shots for 27 different economies.
Harbingers of today's rising discontent were the 55% and 61.5% disapproval of the French and the Dutch expressed in the 2005 referendum regarding the treaty establishing a constitution for Europe. Foretelling was also the 53.2% opposition of the Irish population in the 2008 referendum concerning the treaty of Lisbon.
Legitimate fears of the above countries to see European law overwrite their national constitutions are visible in the October 7th, 2021 declaration of the constitutional tribunal of Warsaw, Poland: "the decision-making bodies of the European Union operate beyond the jurisdiction given to them within the treaties. »
Brexit, Polexit, Frexit? Years to come bear the hallmark of possible change, as seem to indicate the resurgence of waves of independence that could greatly impact the euro, who knows?
If you liked this article, you might want to read through our article on the pound sterling.