IATE Term of the Week: Introduction of the Euro

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The European Economic and Monetary Union (EMU) was launched in 1992. EMU implicates harmonizing economic and fiscal policies, a common monetary policy, and a common currency, the euro. Adopting the euro is a central step in a EU Member State’s economy. Its exchange rate is permanently fixed and monetary policy is reassigned to the European Central Bank in Frankfurt, Germany, which handles it independently for the entire euro area.

The single currency has many assets and advantages over the previous situation where each Member State had its own currency. The benefits of the single currency cover cross-border trade easiness and stability of the economy and the prices. It also facilitates the price comparison between countries, which pushes competition between markets and gives more opportunities and benefits to consumers.

The monetary union was agreed upon at the European Council held at Maastricht in December 1991 as part of the preparations for the introduction of the euro. On 1 January 1999 the Euro was launched as an ‘invisible’ currency, for accounting functions and electronic payments. Coins and banknotes were launched later on 1 January 2002, in 11 countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain.

Greece has been a Euro area member since 2001, Slovenia since 2007, Cyprus and Malta since 2008, Slovakia since 2009, Estonia since 2011, Latvia since 2014, and Lithuania since 2015.

On 1 June 2022, the European Commission assessed in its 2022 Convergence Report, that Croatia fulfills all the criteria for joining the euro area and proposed to the Council that Croatia adopt the euro on 1 January 2023. The country will become the eurozone’s 20th member.

All EU Member States, except Denmark, are required to adopt the euro and join the euro area. Denmark has negotiated an opt-out from the euro and is thus not obliged to introduce it. The Danish population initially rejected the Maastricht Treaty in a referendum in 1992.

Other member countries have still not adopted the euro. Czechia, Hungary, Poland and Sweden, do not have a target date to adopt the euro. The Czech Koruna, the Hungarian Forint, the Polish Złoty, the Romanian Leu and the Swedish Krona have not yet joined the Exchange Rate Mechanism (ERM II) as a first necessary step for the adoption. Nevertheless, adopting the euro is one of the top priorities of the Polish government. Romania has set 2024 as its target year to adopt the euro.

Successful participation in the EU’s Exchange Rate Mechanism (ERM II) is one of the convergence criteria for the adoption of the euro. EU countries have to lead their national legislation towards an alignment with applicable EU law and fulfill special criteria intended to assure economic convergence. Being part of the ERM II is also designed to support non euro-area countries to qualify for becoming part of the euro area.

The four convergence criteria focus on price stability (the average rate of inflation), sound and sustainable public finances (government budgetary position, debt and deficits to gross domestic product), exchange-rate stability and long-term interest rates, to determine the durability of convergence.

At least once every two years, or upon demand of a Member State with a derogation, the Commission and the European Central Bank estimate the progress made by the euro-area applicant countries and announce their conclusions in respective convergence reports.

In 2018 and 2019, respectively, Croatia and Bulgaria took big actions for the adoption of the euro through the commitment to install a number of policy measures for qualifying for the ERM II. At their meeting on 10 July 2020, the ERM II parties agreed to include the Croatian Kuna and the Bulgarian Lev in the Exchange Rate Mechanism (ERM II). Bulgaria is sticking to its target to adopt the euro from January 1, 2024.


References:

European Commission. ERM II – the EU’s Exchange Rate Mechanism. [ONLINE] Available at : https://ec.europa.eu/info/business-economy-euro/euro-area/introducing-euro/adoption-fixed-euro-conversion-rate/erm-ii-eus-exchange-rate-mechanism_en. [Accessed 29 June 2022]. 

European Commission. Who can join and when?. [ONLINE] Available at : https://ec.europa.eu/info/business-economy-euro/euro-area/enlargement-euro-area/who-can-join-and-when_en. [Accessed 29 June 2022].

European Union. Benefits. [ONLINE] Available at : https://european-union.europa.eu/institutions-law-budget/euro/benefits_en. [Accessed 29 June 2022].

European Union. Countries using the euro. [ONLINE] Available at : https://european-union.europa.eu/institutions-law-budget/euro/countries-using-euro_en. [Accessed 29 June 2022]. 

Eurostat. Glossary : Convergence criteria. [ONLINE] Available at : https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Convergence_criteria. [Accessed 29 June 2022]. 

Reuters. June 30, 2021. Bulgaria sticks to plans to adopt the euro from Jan 1, 2024. [ONLINE] Available at : https://www.reuters.com/article/bulgaria-eurozone/bulgaria-sticks-to-plans-to-adopt-the-euro-from-jan-1-2024-idUSL2N2OC1PM. [Accessed 29 June 2022].

The Danish Parliament, EU Information Centre. 2021. The Danish opt-outs from EU cooperation. [ONLINE] Available at : https://www.thedanishparliament.dk/en/eu-information-centre/the-danish-opt-outs-from-eu-cooperation. [Accessed 29 June 2022].


Written by Soufiane Laachach

Study visitor at the Terminology Coordination Unit. Holds a Master’s degree in digital media from CELSA Sorbonne University. Currently preparing a MA in Communication at the University of Luxembourg.