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The euro (EUR or €) is the currency of 12 out of the 15 countries that form the European Union and some outside it, and is divided into 100 cents. The currency was introduced at midnight on January 1, 1999, when the national currencies of participating countries ceased to exist independently and became mere subdivisions of the euro; it is the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used until new notes and coins were introduced on January 1, 2002. The old currencies continued as subdivisions of the euro until they ceased to be legal tender by February 28, 2002.

Although official practice followed in English language EU legislation is to use the words euro and cent as both singular and plural, normal usage outside of such legislation is to use the plurals euros and cents—this somewhat inconsistent position is actually endorsed by the European Commission Translation Service. A small amount of variation of these basic terms exists in the various languages of the member states: for example the Finnish term for the cent is sentti and the Greek term is λεπτο (lepto). The plurals euros and cents are also officially used in Spanish, French and Portuguese.

All Euro coins have a common side showing the worth and a national side showing an image particular to the country it was issued in. Euro banknotes have a common design for each denomination on both sides. All the different coins can be used in all the participating member states: a euro coin bearing an image of the Spanish king is legal tender not only in Spain, but also in Finland (and other nations where the euro is in use).

The date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany, where the Deutsche mark ceased to be legal tender on December 31, 2001. The latest was February 28, 2002, by which all national currencies ceased to be legal tender in their respective member states. (Note that some of these dates were earlier than was originally planned.) However, even after that they will continue to be accepted by national central banks for several years, and in some states for decades hence.

Although some countries are not printing the bigger banknotes such as 500 euro and 200 euro, all banknotes are legal tender throughout the eurozone. Finland decided not to mint or circulate 1 cent and 2 cent coins, except a small numbers for collectors. All cash transactions in Finland ending in 1 or 2 cents will be rounded down and 3 or 4 cents will be rounded up.

The definitive values in euro of these subdivisions (which represent the exchange rate at which the currency entered the euro) are as follows:

13.7603 Austrian Schilling (ATS)
40.3399 Belgian Franc (BEF)
1.95583 German Mark (DEM)
166.386 Spanish Peseta (ESP)
5.94573 Finnish Markka (FIM)
6.55957 French Franc (FRF)
0.787564 Irish Punt (IEP)
1936.27 Italian Lira (ITL)
40.3399 Luxembourg Franc (LUF)
2.20371 Dutch Guilder (NLG)
200.482 Portuguese Escudo (PTE)

The euro was established by the provisions in the Maastricht Treaty on European Union relating to establishing an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria on the size of public debt, and the size of budget deficits. Greece failed to meet these criteria initially, so it did not join the common currency on January 1, 1999. It was admitted two years later, on January 1, 2001, at an exchange rate of:

340.750 Greek Drachmas (GRD) per euro

Denmark and the United Kingdom were granted derogations in protocols to the Treaty on European Union; they are not legally required to join the euro until their governments decide otherwise. Sweden was not granted a derogation by any protocol; nonetheless the Swedish government has also decided against participation at this stage. In Denmark a referendum on joining the euro was held on September 28, 2000, resulting in a 53.2% vote against joining. Although this is the only referendum on the euro that has so far taken place, Sweden will hold its referendum September 14, 2003 and it is likely that there will be one in the United Kingdom eventually.

Hence at present the member states participating in the euro are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. These countries are frequently referred to as the "Eurozone" or as "Euroland". Andorra, Monaco, San Marino, and Vatican City also use the euro, although they are not officially euro members, or members of the EU. (They had previously used currencies that have been replaced by the euro.) Of these, Monaco, San Marino and Vatican City mint their own coins, with their own national symbols on the reverse. Andorra uses French and Spanish coins, since it used to use the French franc and Spanish peseta as its currencies. These countries use the euro by virtue of agreements concluded with EU member states (Italy in the case of San Marino and Vatican City, France in the case of Monaco), approved by the Council of the European Union. Montenegro and Kosovo, which used to have the German mark as their currency, also adopted the euro, although unlike Andorra, Monaco, San Marino and Vatican City, they have not entered into any legal arrangements with the EU explicitly permitting them to do so. The countries which had their currencies fixed to the mark, such as Bulgaria and Estonia, have consequently fixed to euros. Since 2 February 2002 Lithuanian litas (LTL) have been repegged to euros from US dollars.

The euro is administered by the European System of Central Banks (ESCB), composed of the European Central Bank (ECB) and the national central banks of the member states participating in the euro. The ECB (headquartered in Frankfurt am Main, Germany) has sole authority to set monetary policy; the other members of the ESCB participate in the printing, minting and distribution of notes and coins, and the operation of the Eurozone payment system.

The rates at which the initial currencies entered the euro were determined by the ECB based on market rates on December 31, 1998, so that 1 ECU (European Currency Unit) would equal 1 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.) These rates were set by Council Regulation 2866/98 (EC), of December 31, 1998.

The procedure used to fix the irrevocable conversion rate between the Greek 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 June 19, 2000.

Effects of a single currency

Having a single currency is expected to increase the economic interdependency of the EU members that have adopted the euro. This would fit with the long-term purpose of a unified market within the European Union.

Some economists are concerned about the possible dangers of adopting a single currency for a large and diverse area. Because the Eurozone has a single monetary policy, set by the ECB, it cannot be fine-tuned for the economic situation in each individual country. Others point out that the Eurozone is similar in size and population to the United States, which has a single monetary policy set by the Federal Reserve. However, the states of the United States have less regional autonomy and a more homogenous economy than the nations of the EU.

Euro exchange rate

Since the introduction of the euro, its exchange rate against other currencies, especially the US dollar, has declined heavily. At its introduction, the euro was worth USD 1.19; by late 2000 it had fallen to below USD 0.85. It then began what at the time was thought to be a recovery; and by the beginning of 2001 it had risen to USD 0.95. It declined again in 2001, but as of September 2002 was worth about USD 0.97. The two currencies briefly reached parity on July 15, 2002, in the wake of recent US corporate scandals, and there is speculation that this might encourage the use of the euro as an alternative reserve currency.

Euro symbol

The international three-letter code (according to ISO standard ISO 4217) for the euro is EUR. A special euro currency symbol (&#8364) was also designed. After a public survey had narrowed the original ten proposals down to just two, it was then up to the European Commission to choose the final design. The eventual winner was inspired by the Greek letter epsilon (ε), as well as being a stylised version of the letter "E".

The euro is represented in the Unicode character set as well as in updated versions of the traditional latin character sets. Western nations should switch from ISO 8859-1 to ISO 8859-15 in order to represent this character.

Advantages of the euro

It has been said that the euro would add great liquidity to the financial markets in Europe. Governments and companies can now borrow money in euro instead of their local currency, and this allegedly would allow access to many more sources of funds. Other economists consider that the potential strengh of Euroland would be in the coherent efforts of a virtual greater super-economy, in which it is now potentially easier to create stronger financial associations, rather than in the mere sum of single liquidities.

External links

European Central Bank (www.euro.ecb.int)

Links to the national central banks:

A critical view on "inflationary Euro"