Euro

Infobox Currency
currency_name_in_local = евро bg icon
ευρώ gr icon
euró hu icon
eoró ga icon
ewro mt icon
evro sl icon
image_1 = Euro_banknotes.png image_2 = Euro coins version II.png image_title_1 = Banknotes
image_title_2 = Coins
iso_code = EUR (num. 978)
using_countries =Collapsible list
title = flagicon|European Union 15 Eurozone members
flag|Austria|flag|Belgium|flag|Cyprus|flag|Finland|flag|France|flag|Germany|flag|Greece|flag|Ireland|flag|Italy|flag|Luxembourg|flag|Malta|flag|Netherlands|flag|Portugal|flag|Slovenia|flag|SpainCollapsible list
title = 5 with formal agreement
flagicon|Mayotte "Mayotte"
flag|Monaco
flagicon|Saint Pierre and Miquelon "Saint Pierre and Miquelon"
flag|San Marino
flag|Vatican City
unofficial_users =Collapsible list
title = 6 without formal agreement
flagicon|UK "Akrotiri and Dhekelia"
AND
flag|Kosovo
MNE
"flag|Saint Barthélemy"
"flag|Saint Martin"
inflation_rate = 3.6%
inflation_source_date = [http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=122.ICP.M.U2.N.000000.4.ANR ECB] , September 2008
inflation_method = HICP
pegged_by = Collapsible list
title = 10 currencies
frame_style = border:none; padding: 0;
Bosnia & Herz. convertible mark
Bulgarian lev
Cape Verdean escudo
Central African CFA franc
CFP franc
Comorian franc
Danish krone (±2.25%)
Estonian kroon
Lithuanian litas
West African CFA franc
subunit_ratio_1 = 1/100
subunit_name_1 = cent
subunit_inline_note_1 = actual usage varies depending on language
symbol = €
plural = See Euro linguistic issues
plural_subunit_1 = See article
frequently_used_coins = 1, 2, 5, 10, 20, 50 cent, €1, €2
unless otherwise stated as rarely used
rarely_used_coins = 1 and 2 cent
(applies to Finland and The Netherlands)
coin_article = Euro coins
frequently_used_banknotes = €5, €10, €20, €50
rarely_used_banknotes = €100, €200, €500
banknote_article = Euro banknotes
issuing_authority = European Central Bank
issuing_authority_website = www.ecb.eu
printer = Collapsible list
title = printers
frame_style = border:none; padding: 0;
Istituto Poligrafico e Zecca dello Stato
Banco de Portugal
Bank of Greece
Banque de France
Bundesdruckerei
Central Bank and Financial Services Authority of Ireland
De La Rue
Fábrica Nacional de Moneda y Timbre
François-Charles Oberthur
Giesecke & Devrient
Royal Joh. Enschedé
National Bank of Belgium
Oesterreichische Banknoten- und Sicherheitsdruck GmbH
Setec Oy
printer_override_with_original_text = Y
printer_website = Collapsible list
title = websites
frame_style = border:none; padding: 0;
[http://www.ipzs.it/ Istituto Poligrafico e Zecca dello Stato]
[http://www.bportugal.pt/ Banco de Portugal - Imprensa Nacional / Casa da Moeda]
[http://www.bankofgreece.gr/ Bank of Greece]
[http://www.banque-france.fr/ Banque de France]
[http://www.bundesdruckerei.de/ Bundesdruckerei]
[http://www.centralbank.ie/ Central Bank and Financial Services Authority of Ireland]
[http://www.delarue.com/ De La Rue]
[http://www.fnmt.es/ Fábrica Nacional de Moneda y Timbre]
[http://www.oberthur.com/ François-Charles Oberthur]
[http://www.gi-de.com/ Giesecke & Devrient]
[http://www.joh-enschede.nl Royal Joh. Enschedé]
[http://www.nbb.be/ National Bank of Belgium]
[http://www.oebs.at Oesterreichische Banknoten- und Sicherheitsdruck GmbH]
[http://www.setec.com/ Setec Oy] The euro (currency sign: €; currency code: EUR) is the official currency of the European Union (EU). Fifteen member states have adopted it, known collectively as the Eurozone (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Spain). The currency is also used in five further countries with formal agreements and six other countries without such agreements. Hence it is the single currency for over 320 million Europeans. [cite web|url=http://www.eurodesigncontest.eu/emu.cfm?lang=en|title=www.eurodesigncontest.eu/emu.cfm?lang=en ] Including areas using currencies pegged to the euro, the euro directly affects close to 500 million people worldwide. [Number is a sum of "estimated" populations (as stated in their respective articles) of: all Eurozone members; all users of euro not part of Eurozone (whether officially agreed upon or not); all areas which use a currency pegged to the euro, and only the euro. — Please see detailed summation in article Eurozone] With more than€610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro is the currency with the highest combined value of cash in circulation in the world, having surpassed the U.S. dollar (USD). [cite web
last = Atkins
first = Ralph
title = Euro notes cash in to overtake dollar
publisher = Financial Times
date=2006-12-27
url = http://www.ft.com/cms/s/18338034-95ec-11db-9976-0000779e2340.html
accessdate = 2007-05-04]

Taking official estimates of 2007 GDP, the Eurozone is the largest economy in the world by March 2008 after the USD/EUR exchange rate surpassed 1.56.cite web|url= https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html |title=CIA — The World Factbook — Rank Order — GDP (purchasing power parity) | publisher=CIA | date=2008-03-20 | accessdate=2008-04-06] cite web|url= http://www.reuters.com/article/newsOne/idUSL1491971920080314 |title=Weak dollar costs U.S. economy its No. 1 spot | U.S. | Reuters | publisher=Reuters | date=2008-03-14 | accessdate=2008-03-16] cite web|url= http://www.nytimes.com/reuters/news/news-economy-world-biggest.html |title=Weak Dollar Costs U.S. Economy Its World No. 1 Spot | publisher=New York Times | date=2008-03-14 | accessdate=2008-03-16] cite web|url= http://useconomy.about.com/b/2008/02/12/us-no-longer-worlds-largest-economy.htm |title=U.S. No Longer World's Largest Economy | publisher=About.com | accessdate=2008-03-16]

The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes on 1 January 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.

The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Eurosystem (composed of the central banks of the euro zone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Eurosystem participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the Eurozone payment systems.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves. [cite web
title = The €uro: Our Currency
publisher = Economic and Financial Affairs
url = http://ec.europa.eu/economy_finance/euro/transition/transition_main_en.htm
accessdate = 2007-05-04] Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria. In addition, three European microstates (Vatican City, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Three other European states Andorra, Montenegro, and Kosovo have adopted the euro unilaterally, while not being EU members either (see Eurozone).

Characteristics

Coins and banknotes

The euro is divided into 100 cents (sometimes referred to as "euro-cents", especially when distinguishing them from other currencies). Although it departs from usual English practice, "euro" and "cent" are both used for singular and plural in legislation. [cite web | url=http://www.ibiblio.org/theeuro/faq.htm | title=How does everyone in Europe spell "euro"? | publisher=The Euro Information Web Site | accessdate=2008-09-08]

All circulating euro coins (including the €2 commemorative coins) have a "common side" showing the denomination (value) with the old 15 EU-countries in the background. This common side was designed by Luc Luycx. From 2007 or 2008 on (depending on the country where the coin is issued) that “old” map is replaced by a map of Europe, thus also showing non-EU-members like Norway. The coins also have a "national side" showing an image specifically chosen by the country that issued the coin. Euro coins from any country may be freely used in any nation which has adopted the euro.

The coins are issued in €2, €1, 50-cent, 20-cent, 10-cent, 5-cent, 2-cent, and 1-cent denominations. In the Netherlands, some, and in Finland, by law, cash transactions are rounded to the nearest five cents, to avoid the use of the two smallest coins. [cite news| authorlink = European Commission | author = European Commission | coauthors = | title = Euro cash: five and familiar| url = http://ec.europa.eu/economy_finance/een/005/article_4324_en.htm| work = European Economy News | publisher = European Commission| year = 2007-01 | month = January| accessdate = 2008-09-16| quote = With regard to the coins, the 1-cent and 2-cent coins met with resistance in Finland and the Netherlands. In both countries, prices are rounded to the nearest 5 cents – in Finland by law, and in the Netherlands on a voluntary basis following a recommendation from the retail sector and consumer organisations cite web | url = http://europa.eu/scadplus/leg/en/lvb/l25058.htm | title = Commission communication: The introduction of euro banknotes and coins one year after COM(2002) 747 | accessdate = 2008-09-16| authorlink = European Commission | author = European Commission| publisher = European Commission| date = 2003-02-15| work = Official Journal C 36 of 15.02.2003] | quote = Some discussion of the usefulness of the low-value coins, especially the 1- and 2-cent coins, arose in some Member States. In Finland the law requires euro cash payments to be rounded to the nearest five cents and production and use of the 1- and 2-cent coins are therefore limited. ]

Commemorative coins with €2 face value have been issued with changes to the design of the national side of the coin. These include both commonly issued coins, such as the €2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, and nationally issued coins, such as the coin to commemorate the 2004 Summer Olympics issued by Greece. These coins are legal tender throughout the Eurozone. Collector’s coins with various other denominations have been issued as well, but these are not intended for general circulation, and they are legal tender only in the member state that issued them. [cite web | url = http://europa.eu/scadplus/leg/en/lvb/l25058.htm | title = Commission communication: The introduction of euro banknotes and coins one year after COM(2002) 747 | accessdate = 2008-09-16| authorlink = European Commission | author = European Commission| publisher = European Commission| date = 2003-02-15| work = Official Journal C 36 of 15.02.2003] | quote = Collector's coins. Unlike euro coins in circulation, collector's coins will be legal tender only in the Member State which issued them. Their technical specifications must differ from the characteristics of "normal" coins. Medals. Medals also exist but do not have legal-tender status. To avoid confusion, they must not be denominated in euros, or bear the euro symbol or any design similar to the euro coins in circulation. Commemorative coins. Member States may also issue euro-denominated commemorative coins. These are legal tender throughout the euro area. Their technical properties, sizes and face values correspond exactly to those of euro coins. The design on the national side may, for example, commemorate a special national event. ]

The design for the euro banknotes have common designs on both sides. Notes are issued in €500, €200, €100, €50, €20, €10, €5. Each banknote has its own colour and is dedicated to an artistic period of European architecture. The front (recto) of the note features windows or gateways while the back (verso) has bridges. Care has been taken so that the architectural examples do not represent any actual existing monument, so as not to induce jealousy or controversy in the choice of monuments. Some of the highest denominations such as the €500 are not issued in all countries, though they remain legal tender throughout the Eurozone.

Payments clearing, electronic funds transfer

All intra-Eurozone transfers shall be considered domestic and bear the corresponding domestic transfer costs. This is true for retail payments, although several ECB payment methods can be used. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as domestic. The ECB has not standardised paper-based payment orders, such as cheques; these are still domestic-based.

The ECB has set up a clearing system, TARGET, for large euro transactions. [cite web |url=http://www.ecb.int/paym/target/html/index.en.html |title=TARGET |publisher=European Central Bank |accessdate=2007-10-25]

Currency sign

A special euro currency sign (€) was designed after a public survey had narrowed the original ten proposals down to two. The European Commission then chose the design created by the Belgian Alain Billiet. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe. [cite web|url=http://observer.guardian.co.uk/print/0,3858,4325292-102275,00.html |title=Inventor who coined euro sign fights for recognition |work=The Observer |publisher=Guardian Unlimited |first=Kate |last=Connolly |location=Berlin |date=2001-12-23 ]

The European Commission also specified a euro logo with exact proportions and foreground/background colour tones. [cite web|url=http://ec.europa.eu/economy_finance/euro/notes_and_coins/symbol_en.htm |title=The €uro: Our Currency |work=europa.eu |accessdate=2007-10-25] While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead. [cite journal|first=Jürgen |last=Siebert |url=http://www.fontshop.com/features/fontmag/002/02_euro/ |title=The Euro: From Logo to Letter |journal=Font Magazine |issue=2 |year=2002 ] Typewriters lacking the euro sign, can create it by typing a capital 'C', backspacing and overstriking it with the equal ('=') sign. Placement of the currency sign relative to the numeric amount varies from nation to nation, and there is no official recommendation on the issue. [cite web|url=http://www.delidn.ec.europa.eu/en/references/references_5.htm#Q12 |title=Frequently Asked Questions | work=europa.eu |accessdate=2007-10-25]

Economic and monetary union

History (1990–present)

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union that was used to establish an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP, low inflation, and interest rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions from moving to the stage of monetary union which would result in the introduction of the euro.

Economists who helped create or contributed to the euro include Robert Mundell, Wim Duisenberg, Robert Tollison, Neil Dowling, Fred Arditti and Tommaso Padoa-Schioppa. (For macro-economic theory, see below.)

Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro. The "definitive" values in euro of these subdivisions (which represent the exchange rates at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998, so that one ECU (European Currency Unit) would equal one 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.) Council Regulation 2866/98 (EC), of 31 December 1998, set these rates. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day.

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

The currency was introduced in non-physical form (travellers' cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.

The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany; the Mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted two months. The final date was 28 February 2002, by which all national currencies ceased to be legal tender in their respective member states. However, even after the official date, they continued to be accepted by national central banks for periods ranging from several years to forever in Austria, Germany, Ireland, and Spain. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.

Slovenia joined the Eurozone on 1 January 2007, followed by Malta and Cyprus on 1 January 2008. [cite web|url=http://money.cnn.com/2008/01/01/news/international/bc.apfn.eu.fin.cyprus.malta.euro.ap/index.htm|title=CNNMoney.com]

Eurozone

* The euro is the sole currency in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Spain. These 15 countries together are frequently referred to as the Eurozone or the euro area, and, more informally, "euroland" or the "eurogroup". Outside of the area covered by the map, the euro is the legal currency of the French overseas possessions of French Guiana, Réunion, Saint-Pierre et Miquelon, Guadeloupe, Martinique, Saint-Barthélemy, Saint Martin, Mayotte, and the uninhabited Clipperton Island and the French Southern and Antarctic Lands; the Portuguese autonomous regions of the Azores and Madeira; and the Spanish Canary Islands.
* By virtue of some bilateral agreements, [cite web |url=http://europa.eu/scadplus/leg/en/lvb/l25040.htm |title=Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra) | accessdate=2007-05-11 ] the European microstates of Monaco, San Marino, and Vatican City mint their own euro coins on behalf of the European Central Bank. They are, however, severely limited in the total value of coins they may issue.
* Andorra, Montenegro, Kosovo, and Akrotiri and Dhekelia adopted the foreign euro as their legal currency for movement of capital and payments without participation in the ESCB or the right to mint coins. Andorra is in the process of entering a monetary agreement similar to that of the microstates above.
* Several possessions and former colonies of EU states have currencies pegged to the euro. These are French Polynesia, New Caledonia, Wallis and Futuna (the CFP franc); Cape Verde; the Comoros; and fourteen nations of Central and West Africa (the CFA franc). See Currencies related to the euro.
* Although not legal tender in Denmark and the United Kingdom, the euro is accepted in some stores throughout both countries, particularly international stores in large cities, and shops in Northern Ireland near the border with the Republic of Ireland, where the euro is the official currency. Similarly, the euro is widely accepted in Switzerland, even by official boards, such as the Swiss Railways. [cite web|url=http://mct.sbb.ch/mct/en/reisemarkt/services/bahnhof/billettautomat.htm|title=SBB - More at the station - Automatic ticket machine ]

Future prospects

Pre-2004 EU members

From Greece's participation in 2001 until the EU enlargement in 2004, Denmark, Sweden and the United Kingdom were the only EU member states outside the monetary union. The situation for the three older member states also looks different from that of the newer EU members; the three countries have no clear roadmap for adopting the euro:
* Denmark negotiated a number of opt-out clauses from the Maastricht treaty after it had been rejected in a first referendum. On 28 September 2000, another referendum was held in Denmark regarding the euro resulting in a 53.2% vote against joining. However, Danish politicians have suggested that debate on abolishing the four opt-out clauses may be re-opened. In addition, Denmark has pegged its krone to the euro (€1 = DKK 7.46038 ± 2.25%) as the krone remains in the ERM. Although not part of the European Union, both Greenland and the Faroe Islands use the Danish krone (the Faroes in the form of the Faroese króna), and so also fall within the ERM.
* Sweden: Sweden is obliged to join the euro by the 1994 Act of Accession, when it meets the economic conditions. Although the other conditions are met, the krona has never been part of ERM II, rendering Sweden ineligible. In 2003, a public referendum rejected euro membership, and Sweden has no plans to adopt the euro. The EU has made it clear that it will tolerate this with respect to Sweden, giving Sweden a "de facto" opt-out, but not those member states that joined in 2004 or 2007.Fact|date=January 2008
* The United Kingdom has an opt-out from eurozone membership under the Maastricht treaty and is not obliged to join the euro. While the government is in favour of membership provided the economic conditions are right (requiring that "five economic tests" be met), the question has never been put to referendum.cite news | title = Sluggish Europe proves Brown's case on currency | url = http://www.guardian.co.uk/business/2004/dec/20/politics.theeuro | work = The Guardian | publisher = Guardian News and Media Limited | date = 2004-12-20 | accessdate = 2008-02-07 ] The United Kingdom was forced to withdraw the pound sterling from the ERM (the precursor to ERM II) on Black Wednesday (16 September 1992) due a mismatch between its benchmark currency parity and its economic performance, and the pound is not part of ERM II.

Post-2004 EU members

As of 2008, nine new EU member states have a currency other than the euro; however, all of these countries are required by their Accession Treaties to join the euro.Some of the following countries have already joined the European Exchange Rate Mechanism, ERM II. They and the others have set themselves the goal of joining the euro (EMU III) as follows:

* 1 January 2009 for Slovakia [cite web|url=http://www.nbs.sk/INDEXA.HTM |title=Government approved the National Euro Changeover Plan |publisher=Bank of Slovakia |date=2005-07-07] [cite web|url=http://news.bbc.co.uk/2/hi/europe/7388802.stm |title=Slovakia given euro green light|publisher=BBC|date=2008-05-07]
* 1 January 2010 for Lithuania [cite web |url=http://www.lb.lt/eng/euro/index.htm |title=Adoption of the euro in Lithuania |publisher=Bank of Lithuania |accessdate=2007-02-03]
* 1 January 2011 for Estonia [cite news | title=Alcohol and tobacco tax to rise in Estonia next year | url=http://www.hs.fi/english/article/Alcohol+and+tobacco+tax+to+rise+in+Estonia+next+year/1135227499218 | publisher=Helsingin Sanomat | date=2007-05-25 | accessdate=2007-07-30 ]
* 1 January 2012 for Bulgaria, [cite news | url=http://www.sofiaecho.com/article/bulgarias-budget-of-reform/id_26395/catid_23 | title= Bulgaria's budget of reform | publisher=The Sofia Echo | date=2007-11-30 | accessdate=2008-02-06] Czech Republic, Hungary, Latvia, [cite web| url=http://www.forbes.com/markets/feeds/afx/2006/12/04/afx3226263.html |title=Latvia might adopt Euro between 2010 and 2012 - Minister |publisher=Forbes |date=2006-12-04 |accessdate=2007-01-01] Poland.
* 2014 for Romania.

The entry of Lithuania and Estonia as planned for 1 January 2007 was postponed due to unacceptably high inflation rates in those countries. Some of these currencies do not float against the euro, and a subset of those were unilaterally pegged to the euro before joining ERM II. See European Exchange Rate Mechanism, currencies related to the euro, and individual currency articles for more details.

The Czech Republic had originally aimed for entry into the ERM II in either 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not be able to meet the economic criteria. The new stated goal is 2012. [cite web |url=http://www.praguemonitor.com/en/29/czech_business/1766/ |title=Finance Ministry sees 2012 as realistic for euro adoption |publisher=Prague Daily Monitor |date=2007-02-22 |accessdate=2007-02-28] Other sources question the realism of even the revised Czech, Lithuanian and Estonian targets. [cite web | url=http://www.finance.cz/zpravy/finance/147532-poll-euro-entry-seen-delayed-for-some-slovakia-still-2009/ | title=Analysts Poll - Euro entry seen delayed for some countries |publisher=www.finance.cz |accessdate=2008-01-25]

Similarly, Latvia had aimed to join the euro in 2008 but inflation rates of over 11% have resulted in a delay as the country does not meet the current criteria under council rules. The government's official target is now 1 January 2012 although the head of the Bank of Latvia has suggested that 2013 may be a more realistic date. [cite web|url=http://www.baltictimes.com/news/articles/19151/|title=Bank targets 2013 as Latvia’s ‘E-day’ ]

On 10 September 2008, speaking at the launch of an economic forum in a Polish resort of Krynica-Zdrój, Polish Prime Minister Donald Tusk announced the ruling government's objective to join the Eurozone in 2012, by holding a referendum in 2010 and been approved by the European Central Bank in 2011.cite web | url=http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/18/afx5440142.html | title=Poland may hold euro referendum in 2010-Deputy PM | publisher=Forbes | accessdate=2008-09-19] cite web | url=http://www.guardian.co.uk/business/feedarticle/7799421 | title=Poland may push back euro rollout to 2012 | publisher=guardian.co.uk | accessdate=2008-09-19] cite web | url=http://www.bizpoland.pl/news/index.php?contentid=172545 | title=Poland may push back euro rollout to 2012 | publisher=BizPoland | accessdate=2008-09-19] However, since the Polish constitution will need to change first [cite web | url=http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=c5dfd795-8560-498d-99ec-cc0066d38786 | title=Polish charter must change before ERM-2 | publisher=www.fxstreet.com | accessdate=2008-09-25] and they will have to join the ERM 2 before second quarter 2009 [cite web | url=http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/25/afx5469429.html | title=Poland will have to join ERM-2 at latest in Q2 2009 | accessdate=2008-09-26 | publisher=Forbes ] , this target date is still very aggressive.

The "Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area" [cite web|url=http://eur-lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0434en01.pdf |format=PDF |title=Fifth Report on the Practical Preparations for the Future Enlargement of the Euro Area |date=2007-07-16 |publisher=Commission of the European Communities |accessdate=2007-10-25] stated on 16 July 2007 that only Cyprus, Malta (both of which adopted the euro in January 2008), Slovakia (2009) and Romania (2014) had currently set official target dates for adopting the euro.

On 7 May 2008, the European Central Bank stated that Slovakia is ready to join the eurozone from 1 January 2009. This was confirmed by the Eurozone's leaders at the 19-20 June summit, with the conversion rate set adopted on 8 July 2008 with value 30.126. [ citeweb|url=http://euobserver.com/9/26096is/ |title=Slovakia confirmed as ready for Euro|publisher=euobserver.com|accessdate=2008-05-07]

Estonia, Latvia, Lithuania and Slovakia have already finalised the design for their respective coins' obverse sides.

Economics of the euro

Optimal currency area

In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are two models, both proposed by Robert A. Mundell: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro. [A Plan for a European Currency, 1973 by Mundell]

Transaction costs and risks

The most obvious benefit of adopting a single currency is removing from trade the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. On the consumer side, banks in the Eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g. credit cards, debit cards and cash machine withdrawals).

The absence of distinct currencies also removes exchange rate risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals looking to invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. The reduction in risk is particularly important for countries whose currencies have traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the Eurozone.

Price parity

Another effect of the common European currency is that differences in prices—in particular in price levels—should decrease because of the 'law of one price'. Differences in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific markets. [ [http://www.nber.org/papers/w8402 Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market ] ]

Macroeconomic stability

Low levels of inflation are the hallmark of stable and modern economies. Because a high level of inflation acts as a tax (seigniorage) and theoretically discourages investment, it is generally viewed as undesirable. In spite of the downside, many countries have been unable or unwilling to deal with serious inflationary pressures. Some countries have successfully contained them by establishing largely independent central banks. One such bank was the Bundesbank in Germany; as the European Central Bank is modelled on the Bundesbank,Fact|date=April 2008 it is independent of the pressures of national governments and has a mandate to keep inflationary pressures low.Fact|date=April 2008 Member countries that join the bank commit to lower inflation, hoping to enjoy the macroeconomic stability associated with low levels of expected inflation.Fact|date=April 2008 The ECB (unlike the Federal Reserve in the United States of America) does not have a second objective to sustain growth and employment.Fact|date=April 2008

Many national and corporate bonds denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in legacy currencies.Fact|date=February 2007 While increased liquidity may lower the nominal interest rate on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role. A credible commitment to low levels of inflation and a stable debt reduces the risk that the value of the debt will be eroded by higher levels of inflation or default in the future, allowing debt to be issued at a lower nominal interest rate.

A new reserve currency

The euro is a major global reserve currency, sharing that status with the U.S. dollar (USD). The U.S. dollar still continues to enjoy its status as the primary reserve of most commercial and central banks. [http://www.imf.org/external/np/sta/cofer/eng/cofer.pdf]

Since its introduction, the euro has been the second most widely-held international reserve currency after the U.S. dollar. The euro inherited this status from the German mark, and since its introduction, it has increased its standing, mostly at the expense of the dollar. The increase of 4.4% in 2002 is due to the introduction of euro banknotes and coins in January 2002.

The possibility of the euro's becoming the first international reserve currency is now widely debated among economists. [cite web | url=http://www.wage.wisc.edu/uploads/Working%20Papers/chinnfrankel_NBER_eurotopcurrency.pdf | title=Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency? | format=PDF] Former Federal Reserve Chairman Alan Greenspan gave his opinion in September 2007 that the euro could indeed replace the U.S. dollar as the world's primary reserve currency. He said it is "absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency." [cite web | title=Reuters | work=Euro could replace dollar as top currency - Greenspan | url=http://www.reuters.com/article/bondsNews/idUSL1771147920070917 | accessdate=17 September | accessyear=2007] Additionally, there has been suggestion that recent weakness of the US dollar might encourage parties to increase their reserves in euro at the expense of the dollar. [cite web|url=http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=exclusive|title="American Gangster's Wad of Euros Signals U.S. Decline"] In the second term of 2007, euro as a reserve currency has reached a record level of 25.6% (a +0.8% increase from the year before)- at the expense of US dollar which dropped to 64.8% (a drop of 1.3% from the year before). [cite web|url=http://www.bloomberg.com/apps/news?pid=20601101&sid=afEneKf3hgw8&refer=japan|title="Euro Rises on Speculation ECB's Trichet to Signal Higher Rates"] By the end of 2007, shares of euro increased to 26.4% as the dollar slumped to its lowest level since records began in 1999, 63.8%. [ [http://www.bloomberg.com/apps/news?pid=20601087&sid=aU8cbIuuEr38&refer=home Dollar's Share of Currency Reserves Falls, IMF Says (Update1)] Bloomberg]

A currency is attractive for international transactions when it demonstrates stability, a well-developed financial market to trade the currency, and acceptability to others. While the euro has made substantial progress, a few challenges undermine the ascension of the euro as a major reserve currency. Persistent excessive budget deficits of some member nations, economically weak new members, conservatism of financial markets, and inertia or path dependence are important factors keeping the euro as a junior international currency to the U.S. dollar. However, at the same time, the USD has increasingly suffered from a double deficit and has its own concerns.

As the euro becomes a new reserve currency, Eurozone governments will enjoy substantial benefits. Since money is an interest-free loan to the issuing government by the holder of the currency, foreign reserves act as a subsidy to the country minting the currency (see Seigniorage). However, reserve status also holds risks, as the currency may become overvalued, hurting European exporters and potentially exposing the European economy to influence by external factors who hold large quantities of euros.Fact|date=April 2008

Exchange rate

Flexible exchange rates

The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets, because of the implications of the Mundell-Fleming Model which suggest that a central bank cannot maintain interest rate and exchange rate targets simultaneously because increasing the money supply results in a depreciation of the currency. In the years following the Single European Act, the EU has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the exchange rate regime of the euro is flexible, or floating. This explains why the exchange rate of the euro vis-à-vis other currencies is characterised by strong fluctuations. Most notable are the fluctuations of the euro versus the U.S. dollar, another free-floating currency. However this focus on the dollar-euro parity is partly subjective. It is taken as a reference because the euro competes with the dollar's role as reserve currency. The effect of this selective reference is misleading, as it gives observers the impression that a rise in the value of the euro versus the dollar is the effect of increased global strength of the euro, while it may be the effect of an intrinsic weakening of the dollar itself.
thumb|right|350px|Exchange rate evolution of the euro compared to USD, JPY and GBP. Exchange rate at start is put to 1.">
Green: in Jan-1999: €1 = $1.18 ; in Jul-2008: €1 = $1.57
Red: in Jan-1999: €1 = ¥133 ; in Jul-2008: €1 = ¥168
Blue: in Jan-1999: €1 = £0.71 ; in Jul-2008: €1 = £0.80

Against other major currencies

After the introduction of the euro, its exchange rate against other currencies fell heavily, especially against the U.S. dollar. From an introduction at US$1.18/€, the euro fell to a low of $0.8228/€ by 26 October 2000. After the appearance of the coins and notes in 1 January 2002 and the replacement of all national currencies, the euro then began steadily appreciating, and soon regained parity with the U.S. dollar, on 15 July 2002. Since December 2002, the euro has not again fallen below parity with the U.S. dollar but instead began an ascendency. On 23 May 2003, the euro surpassed its initial ($1.18) trading value for the first time. At the end of 2004, it reached $1.3668 (€0.7316/$) as the U.S. dollar fell against all major currencies. Against the U.S. dollar, the euro temporarily weakened in 2005, falling to $1.18 (€0.85/$) in July 2005, and was stable throughout the third quarter of 2005. In November 2005 the euro again began to rise steadily against the U.S. dollar, hitting one record low after another. On 15 July 2008, the euro rose to an all-time high of $1.5990 (€0.6254/$). In a reversal, in August of 2008 the euro began to drop against the U.S. dollar. In just two weeks the euro fell from its peak to $1.48 and by early September it had reached a yearly low below $1.40. [ [http://www.ecb.eu/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html ECB official rates against the U.S. dollar] from ecb.eu] On 3 September 2008, the pound sterling fell to an all-time low of £0.8133 (€1.2296/£) against the euro. [ [http://www.ecb.eu/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html ECB official rates against the British pound] from ecb.eu]
* [http://www.ecb.eu/stats/exchange/eurofxref/html/index.en.html Current and historical exchange rates against 29 other currencies (European Central Bank)]
* [http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/13/12/twelve_month.stm Current dollar/euro exchange rates (BBC)]
* [http://www.kshitij.com/graphgallery/eurmth.shtml Historical exchange rate from 1971 until now]

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300px|thumb|Worldwide use of the euro and the U.S. dollar:

Currencies pegged to the euro

There are a number of non-EU currencies that were pegged to a European currency and are now currencies related to the euro: the Cape Verdean escudo, the Bosnia and Herzegovina convertible mark, the CFP franc, the CFA franc and the Comorian franc.

In total, the euro is the official currency in 15 states inside the European Union, and 5 states/territories outside the European Union. In addition, 23 states and territories have currencies that are directly pegged to the euro including 14 countries in mainland Africa, 3 EU members that will ultimately join the euro, 3 French Pacific territories, 2 African island countries and another Balkan country, Bosnia and Herzegovina.

In the United Kingdom, although not a member of the Eurozone, many high-street banks report that as much as 90% of their international trade is conducted in euro. It is common therefore for them to use the euro as their 'core' currency on international business systems, only converting to Sterling for local accountancy purposes. [cite web
last = Nina
first = Koeppen
title = Euro's Role Slips in World Markets
publisher = The Wall Street Journal
date=26 June 2007
url = http://online.wsj.com/article/SB118280455990947545.html?mod=sphere_ts
accessdate = 2007-08-08]

Linguistic issues

The formal titles of the currency are "euro" for the major unit and "cent" for the minor (one hundredth) unit and for official use in most Eurozone languages; according to the ECB, all languages should use the same spelling for the nominative singular. [cite web|url=http://www.ecb.eu/pub/pdf/conrep/cr200705en.pdf|title=European Central Bank, Covergence report May 2007|format=PDF|quote=The euro is the single currency of the Member States that have adopted it. To make this singleness apparent, Community law requires a single spelling of the word “euro” in the nominative singular case in all Community and national legislative provisions, taking into account the existence of different alphabets.] This may contradict normal rules for word formation in some languages, e.g. those where there is no "eu" diphthong. For English-language texts, there is a recommendation from the Directorate-General for Translation, the EU's translation service, that the natural plurals 'euros' and 'cents' should be used. [For example, see European Commission, Directorate General for Translation: English Style Guide section 20.8 "The euro. Like 'pound', 'dollar' or any other currency name in English, the word 'euro' is written in lower case with no initial capital and, where appropriate, takes the plural 's' (as does 'cent')." [http://ec.europa.eu/translation/writing/style_guides/english/style_guide_en.pdf European Commission Directorate-General for Translation - English Style Guide] .]

ee also

Notes and references

Further reading

*Baldwin, Richard and Charles Wyplosz, "The Economics of European Integration", New York: McGraw Hill, 2004.
*European Commission, "High Level Task Force on Skills and Mobility - Final Report", 14 December 2001.

External links

Official websites

* [http://ec.europa.eu/economy_finance/the_euro/index_en.htm?cs_mid=2946 The euro] – Europa
**PDFlink| [http://ec.europa.eu/comm/translation/writing/style_guides/english/style_guide_en.pdf English style guide] |621 KB
* [http://www.ecb.eu/home/html/index.en.html European Central Bank]
** [http://www.ecb.int/bc/flash/security/index_en.html Security features]
** [http://www.ecb.eu/stats/exchange/eurofxref/html/index.en.html Exchange rates]

Other

Standard numismatics external links
banknote_world_1_url = Euro
banknote_world_1_name = Euro
dollarization_1_url =
dollarization_1_name =
gfd_1_url = Europe
gfd_1_name = Europe
show_gfd_excel = Y
* [http://news.bbc.co.uk/2/hi/business/7300231.stm Dollar falls to record euro low 17 March 2008]
* [http://p2.forumforfree.com/index.php?mforum=melitikus The €uro Collection Forum]
* [http://www.ibiblio.org/theeuro/faq The Euro Information Site] – ibiblio
* [http://www.eurotopics.net/en/magazin/euro-2008-02/euro-debatte-2008-02/ The symbolic power of the euro] Navboxes
list1=