A look at the euro

On 1 January 2002, 12 European countries ditched their own currencies and adopted the euro. Here we look at the integrated currency that was introduced in order to make doing business across Europe much easier and to help build a unified European currency to counter the strength of the Greenback. Here we take a look at the euro.

Firstly, it’s important to know which European countries have so far adopted the euro as their national currency. The 12 euro countries are:

1. Austria
2. Belgium
3. Finland
4. France
5. Germany
6. Greece
7. Ireland
8. Italy
9. Luxembourg
10. The Netherlands
11. Portugal
12. Spain

Countries such as Norway and Britain have decided not to adopt the euro at this stage.
The euro was introduced in order to promote growth and economic stability across Europe, for the participating euro countries at least. And since the euro’s introduction, it appears that the euro is achieving its intended aims. The euro is also becoming an increasingly important player on the international monetary scene. According to Pedro Solbes, Economic and Monetary Affairs Commissioner, “It has important benefits for our external economic partners. For them, it means reduced volatility in monetary relations and improved trade and investment conditions.”

While the participating countries’ former currencies struggled against the US Dollar, the Yen and other currencies such as the Pound Sterling, the euro is showing signs of strength, even in these early years. One important sign of the continuing strength of the euro is that it is now a regular and important component of the world’s foreign currency reserves. The currencies that make up the world’s foreign currency reserves are part of an exclusive club which includes the US Dollar, the Yen, the Pound Sterling, and now the euro.

The euro is becoming increasingly popular outside the European Union as well. It is now widely being used in countries such as Lebanon, Israel and Egypt in the Middle East, countries within Africa and emerging countries within Europe such as Croatia, Hungary, Poland and Turkey.

While there were naturally many teething problems across participating countries when the euro was initially introduced, these countries are now enjoying the benefits, with a more transparent pricing policy and an easing of tensions caused through currency exchange rates among European currencies.

Evidence of the euro’s success can be found in the fact that in the euro’s first two years, GDP in the combined euro countries grew by around 3 per cent per year. This growth was above the expected GDP growth for these countries.

Will the euro replace the US dollar as the international currency?
While the US dollar will likely remain the dominant international currency in the foreseeable future, the euro may gain in popularity. As mentioned, it is already widely being used outside Europe in countries across the Middle East and Africa and also in European countries that have not yet adopted the euro.

Factors that may influence broader international use of the euro include the large size of the economy now using the euro, the stability of the euro and the fact that the euro is helping to integrate financial markets across Europe.

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