15 December 1995: EU announces the new currency will be called the Euro
December 2018 marks the 23rd anniversary of the unveiling of the European Union’s currency, the euro.
Named at the European Council’s Madrid meeting in December 1995, the euro went live as a virtual currency for cash-less payments and accounting purposes on 1 January 1999 – an arguably significant feat, given how long it can take legislation to get through Brussels.
It subsequently came into physical existence on 1 January 2002, in the shape of seven bank notes and eight coins.
Today around 340 million people live within the Eurozone1 - the 19 countries within the EU which have adopted the currency as their sole legal tender.
That said, the actual inception process began much earlier, with the “convergence criteria” for membership agreed in Maastricht by the bloc’s member states back in 1991, as part of the preparations for introduction of the currency.
These criteria formally define the macroeconomic conditions required for membership. These include, among other factors, that a nation‘s annual budget deficit must not exceed 3% of its gross domestic product, while public debt must be under 60% of GDP.
Any countries wishing to become members of the euro also need to have a stable exchange rate and inflation rates must be within 1.5% of the three EU countries with the lowest rate. Long-term interest rates must also be within 2% of the three lowest interest rates in the EU2.
Whether or not the euro has been a success or failure has been - and continues to be - the subject of endless debates. While the creation of a single currency has been a boon for trade, many have argued that it has complicated the equation when it comes to broader macroeconomic issues, such as debt and productivity.
These complications are largely the result of the level of disparity between the continent’s dominant powers, Germany and France, and those on the periphery such as Greece and Portugal.
These disparities came to a head with the start of the European debt crisis in 2009 and remain an issue of concern, especially with the rise of populist leaders in certain counties, many of whom have come to power on a platform of anti-EU sentiment.
The most recent addition to the Eurozone was Lithuania in 2015, though Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden remain on the agenda as possible joiners. But whether the EU expands, could depend as much on the further rise of anti-EU sentiment as it does on the actions of the European Central Bank and its future path of monetary policy.
Movement of the currency itself will also play a part, with ECB President Mario Draghi saying earlier this year that the current strength of the euro is a source of “uncertainty” for the inflation outlook in the face of protectionism, particularly from the US and China. As will, of course, the eventual outcome of Brexit. While the UK never fully committed to the European project – choosing to stay out of the currency union – its drawn-out exit from the broader EU has raised a number of questions both inside and outside of the Eurozone and continues to make the future uncertain.