Five key moments that have helped shape the euro
As we mark its 20th anniversary this month, almost 340 million people in 19 countries call the euro their currency. Over two decades it has had a colourful track record. While it faced severe challenges, it remains steadfast and on track to grow into a strong and dependable currency – just as its founders envisaged.
New year, new euro
New Year’s Day 1999 marked the debut of the euro. The currency was arguably more a political than an economic aspiration, tracing its origins to the early days of the European Economic Community and launched with an ambition that it would foster increased European integration as well as stimulate economic growth.
The euro was enshrined in the Maastricht treaty of 1992 which outlined the requirements countries had to meet before they could adopt the new currency.
On January 1, 1999, the euro replaced the 11 domestic currencies of Germany, France, Italy, Ireland, Belgium, Netherlands, Luxembourg, Spain, Portugal, Finland and Austria. Greece joined the eurozone in January 2001 after initially failing to meet the conditions set out in the Maastricht Treaty, while the UK, Denmark and Sweden opted to retain their own domestic currencies.
To allow businesses, governments, media and the general population time to adjust, it was first traded as a digital currency. In Ireland, the Irish pound was fixed at €1 = IR£0.787564 as the punt was to morph into and become part of the euro.
Euro versus the greenback
At its launch, €1 was worth just under $1.175. The dollar thrived during the Clinton era and the dotcom bubble, however, and the euro sold off to below $0.8250 by October 2000. This was to be the low in the currency as between September and December 2000 central banks collectively intervened to buy up large volumes.
Following the dotcom implosion and terrorist attacks in the US, demand for the greenback declined and the euro began to assert itself.
Bailouts = euro crisis
Greece’s economic travails presented the clearest existential threat for the euro to date. By 2009, the Greek budget deficit had ballooned to 13pc of its GDP. The following year Greece was frozen out of bond markets due to its spiralling budget deficit and debt/GDP ratio. To avoid economic pneumonia in Greece and keep the eurozone intact, the EU agreed to what would become the biggest financial rescue of a bankrupt country in history.
The first of the country’s three bailouts from the EU and IMF began in 2010, a package that totalled €289bn.
Fiscal stability treaty
The financial crisis exposed the euro’s most obvious flaw – the absence of a common fiscal policy. The eurozone has a central bank but not a department of finance. On January 30, 2012, EU leaders agreed on the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union and the fiscal compact was signed by all EU countries, with the exception of the UK and the Czech Republic.
Overseen by the European Commission, the fiscal stability treaty is designed to prevent a repeat of debt crises.
Whatever it takes
On July 26, 2012, ECB president Mario Draghi sought to dispel fears the fault lines in the eurozone would pull the currency bloc apart: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
It injected €3 trillion, providing cheap credit to encourage businesses and consumers to spend their way out of recession.
The euro has endured a challenging first 20 years. The biggest challenge member states have grappled with has been to accept they no longer have individual control over the implementation of monetary policy. The big benefit has been the stability and convenience it has brought to travel and trade within the eurozone.
We look forward with quiet confidence to what the next 20 years have in store.
Sean McBrien is head of liquidity management, Bank of Ireland Global Markets
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