The euro turns 20
14 January 2019
On 1 January 1999 the euro was born. Twenty years on, it’s the world’s second largest and second-most traded currency after the US dollar.
For ordinary citizens in the European Union, little changed initially. It wasn’t until 2002 that euro notes and coins replaced their local currencies. But the birth of the euro in January 1999 marked the start of monetary unity in the European Union. It fixed the exchange rates among the original 11 member states of the eurozone and transferred their monetary policy to the new European Central Bank (ECB).
Today, the euro is used in 19 of the 28 EU countries, with the others obliged to join once they meet the criteria (except Denmark and the United Kingdom). It has also used in non-EU countries such as Andorra, San Marino, Monaco, Vatican City, Montenegro and Kosovo.
Flexibility and painful choices
How the single currency developed over the past two decades holds important lessons for the future, writes Daniel Gros, director of the European Centre for European Policy Studies, in an article on ING’s THINK website that was first published on Project Syndicate.
The first of these is that the performance of individual eurozone countries is not preordained. When the euro was first introduced, most people thought Germany would incur the biggest losses. Yet its inflation is even lower than when the Bundesbank was in charge and its industry remains competitive. That said, there is no guarantee it will retain its current predominance for the next 20 years.
The experiences of countries such as Spain and Ireland reinforce this lesson and show that the ability to adapt to changing circumstances and a willingness to make painful choices matter more than the economy’s starting position.
Jobs and growth
The second lesson is that although some countries tend to blame the euro for their problems, the economic performance of the eurozone is not as bleak as headlines imply. Per capita GDP growth has slowed over the last 20 years, but not more so than in the US or other developed economies.
European labour markets have structurally improved and there is a higher proportion of the adult population economically active in the eurozone than in the US. Employment is at record highs and unemployment (although still high in some southern countries) is continuously declining.
Symbol of integration
These economic realities imply that, even if the euro is not particularly well loved, it is widely recognised as an integral element of European integration. The latest Eurobarometer poll shows support for the euro at an all-time high of 74%. Even Italy, where there have been populist calls to exit the eurozone altogether, boasts a strong pro-euro majority (68% versus 18%). This is the third lesson: despite its many imperfections, the euro has delivered jobs, and there is little support for abandoning it.
But probably the most important lesson is that the euro’s first 20 years played out very differently than many expected, highlighting the importance of recognising that the future is likely to be different from the past. Given this, only a commitment to flexibility and a willingness to rise to new challenges will ensure the common currency’s continued success.
Read the full article on Think Outside, a new section on THINK where ING publishes content from selected third-party sources. This content is not produced by ING economists or analysts and does not necessarily reflect ING’s own views. The original article was first published on Project Syndicate on 7 January 2019.