The History & Interesting Facts About The EUR

It was in 1999 when the European Union agreed to launch a unified currency that promotes growth, stability, and integration of the region. The Euro was launched to substitute the different currencies each European country had.

Since then, the Euro has been through major challenges that shaped its role in today’s economy and the Euro has become one of the most used currencies around the world.

It has quickly become a major player against the US Dollars in the world’s economy, as more European countries started backing this system, and adopting this currency.

Quick facts about the Euro:

• It’s the second largest currency.
• It’s the second most used currency in the world.
• There are 19 countries that currently (2021) use the Euro.

The history of the EUR

In the following, we will review the events that affected the Euro and made it what we know.

1992 – The Idea of The EU is Born

The first step into a unified Europe was in 1992 when twelve member states concluded the Maastricht Treaty which set the first rules and objectives for the European Union.

The initial purpose of the Maastricht Treaty, also known as the “Treaty on European Union ” was to create a unified identity for Europeans, and to share unified regulations and security policies, with a late focus on a unified currency.

Belgium, Italy, Luxembourg, France, Netherlands, West Germany, Denmark, Ireland, United Kingdom, Greece, Portugal, and Spain, were the first countries that signed the treaty, which then came into force in November 1993.

1995 –  The EUR is Officially Planned

The planning phase for the Euro started in 1994 firstly with the establishment of the European Monetary Institute, which became the responsible body of the regulations and monetary policies of the Euro.

This year has also witnessed more countries joining the EU, like Austria, Finland, and Sweden opted-in since this seemed like a viable project that everyone could benefit from.

Following that, the member states agreed to set January 1999 as the official launch of the Euro.

1997 –  Member States Agree on Fiscal Guidelines

The member states agreed in Amsterdam to adopt the Growth and Stability Pact, which concluded some control factors that every state member needed to follow, which was aimed to unify the monetary policies among the member states.

The policies included that all the member states shall follow the recommendations and regulations of the European Central Bank (ECB) rather than their national banks.

The meeting was also accompanied by the adoption of a new exchange rate mechanism (ERM II) which entails the exchange rates of local currencies against the Euro. This mechanism implements flexible exchange rate limits (semi-pegged) rather than fully fixed exchange rate limits.

1999 –  The EUR is Launched

At midnight, on the 1st of January 1999, the Euro was officially launched, however, it started only for electronic transfers, traveler’s cheques, and banking.

As a consequence of the launch, the national currencies of the member states stopped working independently, meaning that their exchange rates were fixed against each other, making them operate as divisions on the Euro.

Belgium, Italy, Luxembourg, France, Netherlands, West Germany, Denmark, Ireland, United Kingdom, Portugal, and Spain were first to adopt the Euro as their currency, while Greece struggled to meet the requirements on time, and followed the adoption 2 years later.

2001 –  Greece Adopts the EUR

Despite being one of the member states that should have adopted the Euro as it came, Greece’s national economic policies failed to meet the requirements of the EU.

This set the country on a real challenge to get itself qualified to join on the third phase, and these efforts were operated by heavy borrowing from Germany, in order to solve inflation and economic problems.

2002 –  First Euro Banknotes are Printed

The production of the euro currency started in 1998, three years and a half since then, in 2002, 7.4 billion notes and 38.2 billion coins were introduced into the European economy.

The printing was accompanied by a huge campaign to educate the public about the new currency, and how to calculate the exchange rates.

The twelve member-states all adopted the Euro as the national currency, and on 28 February 2002, all the local currencies of these countries were replaced.

The bigger challenge was for the banks, which used to operate in both local and euro currencies before 2002, and had to replace all the traded currencies with Euro.

2004 –  8 New Members Pledge to Adopt EUR

The integration of European countries and the unification of currencies sounded like an interesting project for other European countries, as more started to show interest in joining.

Under the supervision of the ECB, other European states started working on meeting the requirements set by the Maastricht Treaty, in order to join the EU and to adopt the Euro as a national currency.

In the same year, the “2004 Enlargement of the European Union” event occurred when 10 countries joined. These were Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia, while Bulgaria and Romania were snubbed.

However, only 8 states adopted the Euro as their national currency. These are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia. Thus, Cyprus and Malta were still in negotiations.

2007 –  2 Members Pledge to the EUR

The next wave of expansion included Romania and Bulgaria, the countries had to go through a lot of regulatory enhancement in order to qualify.

Bulgaria and Romania showed the willingness to join as they adopted a new visa system in the framework of the EU, besides juridical and humanitarian reforms that were positively reviewed by the EU.

The second half of 2006 witnessed the European Commission approving the pledge of Bulgaria and Romania to join the EU with strict supervision over corruption and organized crime.

However, they were still not approved in the areas of Schengen and the Eurozone, as they still had to make huge reforms in order to be further approved, and both countries were to have their applications reviewed by 2010.

2008 –  Cyprus & Malta Adopt EUR

In February 2007, Cyprus and Malta submitted an application to join the European Union, the application was approved, and the two countries were set to join in January 2008.

The approval was accompanied by huge local campaigns to spread awareness of the Euro as an upcoming national currency.

The changeover for these two islands was expected to encourage tourism, as European tourists would be able to visit without any financial considerations regarding local currency or exchange rates.

2008 –  The Global Recession Hits the EU

The Great Recession that started in the United States and reached Western Europe was the first hit that slapped the Euro.

It is also referred to as the “Housing bubble” when banks started giving mortgages extensively to everyone, despite having bad credit reports. Eventually, borrowers could not pay back their loans, and banks started collapsing.

Since the European banks considered (and still do) the US banks an important partner, they kept a considerable portion of their assets there. So when the bubble popped, the European banks faced similar consequences.

European banks lost a considerable amount of their funds in the US, which was spread to the business and corporations in Europe, who rely on taking loans from these banks.

Eventually, businesses could not continue taking loans from banks, which shrank their production, and many employees lost their jobs. Thus, the majority of retailers saw hugely declined sales since a large portion of the consumers became unemployed.

The overall economy of the EU declined by 0.1% in the 2nd quarter of 2008, as some counties suffered less than others. Spain and Ireland were the firsts to collapse under this recession.

Retail sales dropped by 0.6 % in June from the May level and by 3.1 % from June in the previous year. Industrial production declined by 1.9%, in a record decline. And European car sales fell 7.8% compared with a year earlier.

2009 –  Slovakia Adopts the EUR

Slovakia applied in 2008 to adopt the Euro, which was approved by the European Commission.

The decision came after extensive reforms by the Slovakian government to correct the inflation rates in the country, as well as keep the growth rate below the maximum cap allowed.

Besides that, the central bank of Slovakia presented a clear plan to withdraw the local currency since the government was planning to replace it with the coming Euro.

The awareness campaign was done by conducting local competitions in towns and villages and distributing Euros as gifts and awards.

2010 –  The Sovereign Debt Crisis Peaks

As an extended consequence of the great recession, some countries could not cope with the later developments, which saw a real challenge for their economies in the light of the Euro.

Greece, Portugal, Spain, Italy, and Ireland, who ჰად heavily borrowed money to make themselves eligible for joining the EU, found themselves drowning in debt, with lower chances of repayment due to the turmoil of the economic crisis.

Eventually, domestic and foreign lenders increased the interest rates of these debts, making it almost impossible for the member states to repay them. Soon enough, most started to default.

Seventeen Eurozone countries agreed to create the European Financial Stability Facility (EFSF) to assist countries that are in a financial crisis or need financial assistance.

With the EFSF being established and closely monitoring the situation in Greece, the International Monetary Fund (IMF) agreed to bail out the Greek economy with austerity measures, which was faced with social unrest and riots.

The public protested the austerity measurements as the government cut the expenditure heavily. Under the light of the Euro, Greece could not print more money which might have solved the crisis, and speculations increased of an EU exit and return to Greek Drachma.

2011 –  Estonia Adopts the EUR

Despite the financial crisis storming the EU, some countries saw it as a chance to develop their fiscal policies, especially the countries that came out of the USSR’s shadow and wanted to have a more European direction in the EU family.

Estonia was the first Baltic country that pleaded to join the EU in 2010, its application did not wait too long, as the European Commission, the ECB, and European Parliament supported Estonia’s application for accession.

And in January 2011, Estonia was officially a European member state, with the Euro adopted as a national currency instead of the Estonian Kroon.

2012 –  The EU Crisis Subsides, But With Casualties

After 2 years of economic struggles, and financial assistance efforts by the IMF and EFSF led by Germany, some lenders agreed to write off some debts, while others agreed to decrease the predatory interest rates.

The notion behind the solution of the crisis was to find alternative ways to heavy borrowing, which was achieved using the Eurobond. In addition, Germany and the IMF provided a few rescue packages that helped the countries overcome the financial crisis.

However, not everything was recovered peacefully, the crisis ended but it left deep scars on the economy of the member states. The ratio of national debt to their GDP was the following:

• Ireland – 120%
• UK – 83.2%
• France – 90.6%
• Spain – 86.3%
• Portugal – 129%
• Netherlands – 66.2%
• Belgium – 104.8%
• Germany – 81.1%
• Italy – 126.5%
• Austria – 81.9%
• Finland – 53.5%
• Denmark – 44.9%
• Sweden – 37.6%
• Poland – 54.1%
• Lithuania – 39.8%
• Latvia – 42.4%
• Estonia – 9.8%
• Czech Republic – 44.5%
• Slovakia – 51.8%
• Slovenia – 53.6%
• Greece – 104.%
• Bulgaria – 16.7%
• Croatia – 70.1%
• Cyprus – 80.3%
• Hungary – 78.6%
• Luxembourg – 22%
• Malta – 67.8%
• Romania – 37%

2012 –  The Banking Union is Established

The need for a unified Banking Union came from the fact that any distress in one country of the Eurozone, will cause distress in every other member country, and this is a lesson learned from the 2008 great recession and the 2010 sovereign debt crisis.

The new entity was established to monitor the way banking systems cooperate with public sectors of EU countries, and interfere as early as any flag arises, in order to prevent any escalation that would repeat the previous crises.

The Banking Union aimed to promote unified policies for all banking systems, and a transparent procedures and recovery system.

2013 –  The EUR Hits Its Lowest Approval Rate

Coming out from a couple of crises, and with the fear of the unknown, European countries showed less confidence in the Euro and anticipated that more troubles were to come.

On the other hand, countries like Belgium believed that all these lessons learned will help shape a more stable and trustworthy system and monetary policy since it is the “European Dream” and it would naturally take time before it becomes ideal.

The approval rate dropped majorly among the biggest EU countries, such as the UK, Spain, France, Ireland, and Cyprus to as low as 40%. While generally, it fell down to 51% on average.

2014 –  Latvia Adopts the EUR

Seeing the successful accession of its neighbor country Estonia, Latvia decided to join the EU family, and its application saw approval in 2014.

Latvia was admitted to the Eurozone due to the successful management of its monetary policies and banking system that managed to keep the criteria under the requirements of the EU.

In January 2014 Latvia adopted the Euro as a replacement for its national currency Lat.

2015 –  Lithuania Adopts the EUR

Similarly, Lithuania decided to follow the steps of its neighbors and became the last Baltic state to have joined the EU, with its application successfully approved in 2015.

The Lithuanian government successfully managed to keep the price stability, exchange rate stability, convergence of long-term interest rates, and the budgetary position under control and in line with the European standards.

2016 –  UK Votes Leave

The UK’s then Prime Minister, David Cameron, during his Bloomberg speech about the political and economical relations with the EU, and the further development, promised to conduct a referendum to survey the opinion whether the UK shall remain part of the EU or leave the EU.

Around 52% of voters preferred leaving the EU, and as the Prime Minister promised, the results of the referendum would be implemented.

The main reasons behind the voters’ decision, were the problems associated with illegal immigration, the unemployment rates, and to have the UK decide its own laws, rather than following EU regulations.

In 2017, the house of commons passed the legislation and was clear to start the withdrawal process. Negotiations then started with the EU, to set a timeline for the withdrawal. And by February 1, 2020, the United Kingdom was not part of the EU anymore.

The withdrawal was accompanied by economic disruptions as the exchange rates changed massively. The British Pound witnessed a huge drop against most of the leading currencies, especially against the EUR, dropping a whopping 15% in the first few years after the referendum.

The shock in the exchange rate was mainly due to the political and economical instability anticipated in the United Kingdom as a result of the projected departure from the EU.

2020 –  COVID-19 Sweeps Across the EU

The pandemic of Covid-19 is yet another crisis the whole world had a taste of.

Despite a slight recovery in 2021, most countries suffered a huge GDP drop in 2020, Spain and Portugal as heavily reliant on tourism, witnessed GDP decline by more than 9%.

The gross domestic product in Europe has declined -11% in the 2nd quarter of 2020, before recovering a bit in the 3rd and 4th quarters of the same year, then dropping again in 2021.

As a result, the unemployment rate increased to 7.5% in Europe overall, jumping from 6% before the pandemic.

The slowdown in the global economy also affected the Euro, which dropped largely against the major currencies, and especially against the US Dollars, the EUR/USD, which in 2021 traded at 1.16 was as low as 1.10 during the first half of 2020.

Which started improving well during the 2nd half of 2020, and continues rising until today, recovering a lot from the losses it incurred when the pandemic first hit everyone.

The drop in the exchange rate can be explained by the global shutdown, where countries closed borders and the majority of businesses and trades were either closed or put on hiatus.

2021 –  The EUR Reaches Its Highest Approval Rating

The majority of European countries expressed satisfaction with the way the EU dealt with the pandemic, and the opinion over the EU started growing positively.

And with the satisfaction over the EU, people started to confide more in Euro, and the approval rate for the Euro increased to 70%.

The opinion was shared among the countries with strong economies such as Germany and Sweden, as well as countries with weaker economies that faced worse adversity such as Spain and Italy.

This approval rate is considered a record-high approval rate for this currency, especially coming out from a global crisis that slammed the economy.

Europe Before & After The Euro

It is debatable whether the European was better off before or after the adoption of the Euro. There is definitely a long road for optimization for the union that was founded not more than 3 decades ago.

And probably the EU is lucky to have learned lots of lessons from the past, yet it had to make its own lesson from its own stumbles.

In this section, we will review the changes that took place before and after the EU, and what were the reflections on the population’s standards of living and salaries.

Average Salary

In terms of salaries, we will compare the average salary of one person in the 1990s against the 2000s.

Most of the countries saw positive improvement, which rate differs depending on the status of that country prior to joining the EU, for example, the Baltic states saw a huge shift, due to the situation they were left in after coming out of the USSR.

Germany

1999 = 5900 Deutch Mark (Equiv to 3000 EUR)

2021 = 4,000 EUR

Ireland

1999 = 1,817 Irish Pounds (Equiv to 2,308 EUR)

2021 = 3,356 EUR

France

1999 = 6,900 French Francs (Equiv to 1,050 EUR)

2021 = 3,340 EUR

Spain

1999 = 372,704 Spanish Pesetas (Equivalent to 2,240 EUR)

2021 = 2,710 EUR

Portugal

1999 = 117,482 Escudos (Equivalent to 586 EUR)

2021 =  2,800 EUR

Netherlands

1999 = 1,968 Dutch Guilders (Equivalent to 950 EUR)

2021 = 2,800 EUR

Belgium

1999 = 90,280 Belgian Francs (Equivalent to 2,238 EUR)

2021 = 3,650 EUR

Italy

1999 = 3,388 Italian Lire (Equivalent to 1,750 EUR)

2021 = 3,650 EUR

Austria

1999 = 46,000 Austrian Schilling (Equivalent to 3,350 EUR)

2021 = 3,666 EUR

Greece

1999 = 160,000 Greek Drachma (Equivalent to 470 EUR)

2021 = 1,200 EUR

Lithuania

1999 = 787 Lithuanian Litas (Equivalent to 228 EUR)

2021 = 1,517 EUR

Latvia

1999 = 133 Latvian Lats (Equivalent to 190 EUR)

2021 = 936 EUR

Estonia

1999 = 4,700 Estonian Kroon (Equivalent to 300 EUR)

2021 = 1,500 EUR

The Losers of Euro Adoption – Greece

Despite the fact that most European countries had their national economy and fiscal policy improved, one country seemed to be on the other end of this spectrum.

Greece has always seen difficulties stabilizing its economy. It has faced lots of domestic economic and financial problems slammed by the regional and global economic crises.

We will look at the important indicators to compare the situation before and after adopting the Euro:

Debt to GDP

Before EUR – 97% (2002)

After EUR – 172% (2013)

Average Yearly Salary

Before EUR – 19,310 Euros (2002)

After EUR – 16,800 Euros (2013)

GDP

Before EUR – 154 Billion EUR (2002)

After EUR – 242 Billion EUR (2013)

GDP per capita

Before EUR – 12,100 EUR (2002)

After EUR – 21,800 EUR (2013)

Budget Deficit

Before EUR – 6% (2002)

After EUR – 13.4% (2013)

Unemployment Rate

Before EUR – 10% (2002)

After EUR – 27.5% (2013)

Greece wanted to join the EU so badly that it rushed to take exaggerated measures to get its banking system and fiscal policy to look appropriate in front of the European Commission.

In order to do so, Greece had taken excessive loans from the IMF and other European countries, which it never paid back.

In addition, Greece was not able to solve its own problems since it was not able to print its own money or change its own monetary policies, since it had to abide by the EU regulations.

EUR Compared to USD on Global Scale

The Euro is considered new compared to the US Dollar, however, it managed to impose itself as a major player on the global stage, it is fair to say that the global economy and transactions are shaped in terms of USD first, and the EUR secondly.

Something similar to the iOS and Android, the two giant operating systems that are compared against each other every time globally, the USD and EUR are tied against each other, and the performance of one is usually on the account of the other.

What we know is that the Euro still has a long way to go and improve, as it hopes to overpower the USD.

Below, we take a look at the main figures between them;

Percentage of Global Payments

EUR – 39.03% (2021)

USD – 38.35% (2021)

Foreign Exchange Reserves

EUR – 20% (2020)

USD 60% (2020)

Inflation Rate

EUR – 0.68% (2020)

USD 1.23% (2020)

That being said, the European Union is a great achievement for the region, it has definitely met some of its intended goals, facilitate the move of labor across the countries, share the experience and the information flow between the states, which is better for the overall good.

The unification of currency and fiscal policy is yet another achievement of the EU. The Euro became the national currency for 19 countries, and the ECB is regulating all the monetary transactions across Europe.

However, recent developments saw the Euro rising in value, and it is going to be interesting to see further development of this currency, with every effort done by the EU states to remain as one of the strongest currencies worldwide.