Euro Currency Launched
On 1 January 1999, eleven member states of the European Union fixed their exchange rates irrevocably and adopted the euro as their shared currency, handing control of monetary policy to a new European Central Bank. The founding members were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The move was the most ambitious step in European economic integration since the creation of the common market, and it tied the fortunes of national economies together in a way few earlier projects had.
The idea had deep roots. After the collapse of the Bretton Woods system of fixed exchange rates in the early 1970s, European governments repeatedly tried to limit currency swings among themselves, most notably through the European Monetary System launched in 1979. Supporters argued that stable exchange rates were essential to a single market in which goods, services, capital and people moved freely. The Maastricht Treaty, agreed in 1992 and in force the following year, set a path to monetary union. It also laid down "convergence criteria" on inflation, public debt, budget deficits and interest rates that countries had to meet to join. Turbulence in 1992 and 1993, when Britain and Italy were forced out of the exchange rate mechanism, showed how fragile the earlier arrangements were.
The launch in 1999 was initially a matter of accounting and finance. The euro existed as a unit for banking, financial markets and electronic payments, with conversion rates fixed against the old national currencies. Ordinary people continued to use francs, marks, lire and pesetas. Euro banknotes and coins entered circulation on 1 January 2002, and the national currencies were withdrawn within weeks. Greece joined in 2001, and other countries followed over the next two decades. Britain, Denmark and Sweden stayed outside, with Denmark and the UK holding formal opt-outs from Maastricht.
The euro became one of the world's major currencies and removed exchange costs and rate uncertainty within the eurozone. But it also created a union with a single monetary policy and no matching central fiscal authority. When the global financial crisis of 2008 gave way to the sovereign debt crisis that began around 2010, countries such as Greece, Ireland, Portugal, Spain and Cyprus faced severe pressure, and bailouts came with painful austerity conditions. Economists still debate whether the crisis revealed a basic design flaw, the result of poor policy choices, or both.
The currency survived, however, and the eurozone has since expanded to include twenty countries as of 2023. The euro remains both a practical tool used by hundreds of millions of people and a symbol of the unresolved question of how far European integration should go.