Thankfully, today I only have one anniversary with an appropriate stamp (and just one stamp at that). I’m thankful because what I tried last night took a great deal of time and effort. I don’t think I will repeat that format until this blog goes to the planned weekly format, starting in late March.
It was twenty years ago today that, for the first time since the reign of Charlemagne in the ninth century, Europe was united with a common currency when the euro began trading. The currency was introduced in non-physical form (traveler’s checks, electronic transfers, banking, etc.) at midnight on Friday, January 1, 1999. The national currencies of the initial eleven participating countries (the eurozone) ceased to exist independently when trading began on Monday, January 4. Their exchange rates were locked at fixed rates against each other. 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 euro notes and coins were introduced on January 1, 2002.
The euro (sign: €; code: EUR) is currently the official currency of 19 of the 28 member states of the European Union. This group of states is known as the eurozone or euro area, and counts about 340 million citizens as of January 2019. The euro is the second largest and second most traded currency in the foreign exchange market after the United States dollar.
The euro is divided into 100 cents (sometimes referred to as euro cents, especially when distinguishing them from other currencies, and referred to as such on the common side of all cent coins). In Community legislative acts the plural forms of euro and cent are spelled without the s, notwithstanding normal English usage. Otherwise, normal English plurals are sometimes used, with many local variations such as centime in France.
The currency is also used officially by the institutions of the European Union, by four European microstates that are not EU members, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members also use the euro as their currency. Additionally, 240 million people worldwide as of January 2019 use currencies pegged to the euro.
The initial ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. For example, already in the League of Nations, Gustav Stresemann asked in 1929 for a European currency against the background of an increased economic division due to a number of new nation states in Europe after World War I. At this time memories of the Latin Monetary Union involving principally France, Italy, Belgium and Switzerland and which, for practical purposes, had disintegrated following the First World War, figured prominently in the minds of policy makers.
A first attempt to create an economic and monetary union between the members of the European Economic Community goes back to an initiative by the European Commission in 1969, which set out the need for “greater co-ordination of economic policies and monetary cooperation.” This was followed up at a meeting of the European Council at The Hague in December 1969. The European Council tasked Pierre Werner, Prime Minister of Luxembourg, with finding a way to reduce currency exchange rate volatility. His report was published in October 1970 and recommended centralisation of the national macroeconomic policies entailing “the total and irreversible fixing of parity rates and the complete liberation of movements of capital.” But he did not propose a single currency or central bank. An attempt to limit the fluctuations of European currencies, using a snake in the tunnel, failed.
In 1971, United States President Richard Nixon removed the gold backing from the U.S. dollar, causing a collapse in the Bretton Woods system that managed to affect all of the world’s major currencies. The widespread currency floats and devaluations set back aspirations for European monetary union. However, in March 1979 the European Monetary System (EMS) was created, fixing exchange rates onto the European Currency Unit (ECU), an accounting currency, to stabilise exchange rates and counter inflation. It also created the European Monetary Cooperation Fund (EMCF).
In February 1986, the Single European Act formalized political co-operation within the Community including competency in monetary policy. European Council summit in Hannover on June 14, 1988, began to outline monetary co-operation. France, Italy and European Commission backed a fully monetary union with a central bank, which British Prime Minister Margaret Thatcher opposed.
The Hannover European Council asked Commission President Jacques Delors to chair an ad hoc committee of central bank governors to propose a new timetable with clear, practical and realistic steps for creating an economic and monetary union. This way of working was derived from the Spaak method. France and the UK were opposed to German reunification, and attempted to influence the Soviet Union to stop it. However, in late 1989 France extracted German commitment to the Monetary Union in return for support for German reunification.
The Delors report of 1989 set out a plan to introduce the EMU in three stages and it included the creation of institutions such as the European System of Central Banks (ESCB), which would become responsible for formulating and implementing monetary policy. It laid out monetary union being accomplished in three steps. Beginning the first of these steps, on July 1, 1990, exchange controls were abolished, thus capital movements were completely liberalized in the European Economic Community. Leaders reached agreement on currency union with the Maastricht Treaty, signed on February 7, 1992. It agreed to create a single currency, although without the participation of the United Kingdom, by January 1999.
Gaining approval for the treaty was a challenge. Germany was cautious about giving up its stable currency, the German Mark, France approved the treaty by a narrow margin and Denmark refused to ratify until they got an opt out from monetary union as the United Kingdom, an opt-out which they maintain as of 2011. On September 16, 1992, known in the UK as Black Wednesday, the British pound sterling was forced to withdraw from the fixed exchange rate system due to a rapid fall in the value of the pound.
Delors’ second stage began in 1994 with creation of the European Monetary Institute, succeeding the EMCF, under Maastricht. It was created as the forerunner to the European Central Bank. It met for the first time on January 12, 1994, under its first president, Alexandre Lamfalussy. After much disagreement, in December 1995 the name euro was adopted for the new currency (replacing the name Ecu used for the previous accounting currency), on the suggestion of then-German finance minister Theo Waigel. They also agreed on the date January 1, 1999, for its launch.
On June 17,1997, the European Council decided in Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the euro, and a new exchange rate mechanism (ERM II) was set up to provide stability above the euro and the national currencies of countries that hadn’t yet entered the eurozone. Then, on May 3, 1998, at the European Council in Brussels, the 11 initial countries that would participate in the third stage from January 1, 1999, were selected. To participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, low inflation, and interest rates close to the EU average. Greece failed to meet the criteria and was excluded from participating on January 1, 1999.
On June 1, 1998, the European Central Bank succeeded the European Monetary Institute. However it wouldn’t take on its full powers until the euro was created on January 1, 1999. The bank’s first President was Wim Duisenberg, former head of the EMI and the Dutch central bank. The conversion rates between the 11 participating national currencies and the euro were then established. 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 December 31, 1998, so that one ECU would equal one euro. These rates were set by Council Regulation 2866/98 (EC), of December 31, 1998. 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. 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 value of the euro, which started at USD $1.1686 on December 31, 1998, rose during its first day of trading, Monday, January 4, 1999, closing at approximately USD $1.18. It was rapidly taken up and dealers were surprised by the speed at which it replaced the national currencies. Trading in the Deutsche Mark was expected to continue in parallel but vanished as soon as the markets opened. However, by the end of 1999 the euro had dropped to parity with the dollar leading to emergency action from the G7 to support the euro in 2001.
Later in 2000, Denmark held a referendum on whether to abandon their opt-out from the euro. The referendum resulted in a decision to retain the krone, and also set back plans for a referendum in the UK as a result. The procedure used to fix the irrevocable conversion rate of 340.750 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 as a virtual currency, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC), of June 19, 2000.
The designs for the new coins and notes were announced between 1996 and 1998, and production began at the various mints and printers on May 11, 1998. The task was large, and would require the full three years and a half. In all, 7.4 billion notes and 38.2 billion coins would be available for issuance to consumers and businesses on January 1, 2002. In 7 nations, the new coins, struck in the run-up to 1 January 2002, would bear a 2002 date. In Belgium, Finland, France, the Netherlands, and Spain, the new coins would bear the date of striking, so those 5 countries would be the only ones to strike euro coins dated 1999, 2000, and 2001. Small numbers of coins from Monaco, Vatican City, and San Marino were also struck. These immediately became popular collector’s items, commanding premiums well above face value. New issues continue to do so to this day.
Meanwhile, a parallel task was to educate the European public about the new coins. Posters were issued showing the designs, which were used on items ranging from playing cards to T-shirts. As a final step, on December 15, 2001, banks began exchanging “euro starter kits”, plastic pouches with a selection of the new coins in each country (generally, between 10 and 20 euros worth—though Finland’s contained one of each coin, totalling €3.88). They would not be usable in commerce until January 1, when notes would be made available as well. Larger starter kits, containing a roll of each denomination, were available as well in some nations.
Retailers and government agencies had a considerable task as well. For items to be sold to the public, dual pricing was commonly utilised. Postage stamps for governments (as well as stamps issued by the United Nations Postal Administration for the UN offices in Vienna) often bore denominations both in the legacy currency and euros, assuring continued utility beyond 2001. Banks bore a huge task, not only in preparation for the change of the notes and coins, but also in the back office. Beginning in 1999, all deposits and loans were technically in euros, but deposits and withdrawals continued in the legacy currency. Statements would bear balances in both currencies beginning no later than July 1, 2001, and earlier if required by the customer’s needs.
Beginning on December 1, 2001, coins and notes were distributed from secure storage, first to large retailers, and then to smaller ones. It was widely expected that there would be massive problems on and after January 1. Such a changeover, across twelve populous countries, had never been attempted before.
The new coins and notes were first valid on the French island of Réunion in the Indian Ocean. The first official purchase using euro coins and notes took place there, for one kilogram of lychees. The coming of midnight in Frankfurt at the ECB offices, though, symbolized the transition. In Finland, the Central Bank had opened for an hour at midnight to allow citizens to exchange currency, while a huge euro pyramid had decorated Syntagma Square in Athens. Other countries noted the coming of the euro as well — Paris’s Pont Neuf was decorated in EU colours, while in the northern German town of Gifhorn a sombre, symbolic funeral for the Deutsche Mark took place.
Except for Germany, the plan for introduction of the new currency was basically the same. Banks would accept the exchange of legacy currencies, begin to dispense euros from ATMs, and only euros would be available as withdrawals were made, beginning on January 1. Merchants would accept legacy currency, but give change only in euros. In Germany, the Deutsche Mark would no longer be a legal tender on January 1, but would have to be exchanged at the banks.
Despite the massive amounts of euros available, chaos was feared. In France, these fears were accentuated by a threatened postal workers’ strike. The strike, however, was settled. Similarly, workers at the French bank BNP Paribas threatened to disrupt the introduction of euro currency with a strike. That was also settled.
In practice, the roll-out was smooth, with few problems. By January 2, all ATMs in 7 countries and at least 90 percent in 4 others were issuing euros rather than legacy currency, with Italy, the worst offender, having only 85% of ATMs dispensing euros. The unexpected tendency of consumers to spend their legacy currency, rather than exchange it at banks, led to temporary shortages of euro small change, with some consumers being given change in legacy currency.
Some businesses did take advantage of the currency exchange to raise prices. According to a study by the Deutsche Bundesbank, there was a price rise, but consumers refused to buy as much. A coffee bar in Italy that took advantage of the transition to raise coffee prices by a third was ordered to pay compensation to customers.
Nations were allowed to keep legacy currency in circulation as legal tender for two months, until February 28, 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 after December 31, 2001. Most member states, though, permitted their legacy currency to remain in circulation the full two months. The legacy currency was exchangeable at commercial banks in the currency’s nation for a further period, generally until June 30, 2002.
However, even after the official dates, they continued to be accepted for exchange by national central banks for varying periods — and indefinitely in Austria, Germany, Ireland, and Spain. Coins from those four countries, Italy, and Finland remain exchangeable. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after December 31, 2002, although banknotes remain exchangeable until 2022. All banknotes current on January 1, 2002 would remain valid until at least 2012.
In Germany, Deutsche Telekom modified 50,000 pay phones to take Deutsche Mark coins in 2005, at least on a temporary basis. Callers were allowed to use DM coins, at least initially, with the Mark pegged to equal one euro, almost twice the usual rate.
In France, receipts still indicate the value of products in the legacy currency along with the euro value, as do receipts in Slovenia. In other eurozone countries this has long been considered unnecessary. In June 2008, The New York Times reported that many merchants in the French town of Collobrières, in Provence, choose to accept exchangeable franc notes.
All circulating coins have a common side showing the denomination or value, and a map in the background. Due to the linguistic plurality in the European Union, the Latin alphabet version of euro is used (as opposed to the less common Greek or Cyrillic) and Arabic numerals (other text is used on national sides in national languages, but other text on the common side is avoided). For the denominations except the 1-, 2- and 5-cent coins, the map only showed the 15 member states which were members when the euro was introduced. Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a map of Europe also showing countries outside the Union like Norway, Ukraine, Belarus, Russia or Turkey. The 1-, 2- and 5-cent coins, however, keep their old design, showing a geographical map of Europe with the 15 member states of 2002 raised somewhat above the rest of the map. All common sides were designed by Luc Luycx. The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any member state may be freely used in any nation that has adopted the euro.
The new banknotes were introduced in the beginning of 2013. The top half of the image shows the front side of the 5 euro note and the bottom half shows the back side. The design for the new Europa series 100 euro note (and for new 50 and 200 notes) features the acronyms of the name of the European Central Bank in ten linguistic variants, covering all official languages of the EU28.
The coins are issued in denominations of €2, €1, 50c, 20c, 10c, 5c, 2c, and 1c. To avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands and Ireland (by voluntary agreement) and in Finland (by law). This practice is discouraged by the Commission, as is the practice of certain shops of refusing to accept high-value euro notes.
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 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.
The design for the euro banknotes has common designs on both sides. The design was created by the Austrian designer Robert Kalina. 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 of the note features windows or gateways while the back has bridges, symbolising links between countries and with the future. While the designs are supposed to be devoid of any identifiable characteristics, the initial designs by Robert Kalina were of specific bridges, including the Rialto and the Pont de Neuilly, and were subsequently rendered more generic; the final designs still bear very close similarities to their specific prototypes; thus they are not truly generic. The monuments looked similar enough to different national monuments to please everyone.
Luxembourg released a single non-denominated “A” stamp on March 8, 1999, to mark the introduction of the euro (Scott #1002). This was valued at 15 francs on the date of issue. On October 1, 1999, the Principality issued a set of six stamps picturing the euro coins, the values on the coins illustrated matching the stamp’s denomination (Scott #1066-1071). These were printed by photogravure and perforated 11½.