The Advent of the Euro –13th anniversary

by Jörgen Eriksson on January 4, 2013

The Economist - January 2nd 1999

It will happen over a holiday weekend, and in a way which leaves ordinary citizens more or less unaffected, as new notes and coins will not replace old national currencies for a further three years. But the nature of its launch on January 4th should not let anyone underestimate the importance of the creation of the euro, the new single currency for 11 European Union members, nor miss its genuinely historic nature.

It is the biggest risk the EU has ever taken, but also an adventure that could transform the economic and political landscape of the continent. It is the first time that countries of anything like this number, size or global economic weight have gathered together to share a currency, and thus to pool their monetary sovereignty. It is arguably the most momentous currency innovation since the establishment of the United States dollar in 1792.”

– The Economist, January 2nd 1999

On this day in history January 4th 1999 the Euro made its debut. In 2002 notes and coins began to circulate. The Euro rapidly took over from the former national currencies.

The euro was designed to facilitate the European Unions borderless market by providing services, transporting goods and moving capital between euro-using nations without transaction costs and currency risks.

EU currency countries

Despite fears in recent years the stress of the recent recession and debt crises the euro survives. The doomsayers are regretting their words. Greece has not left the Euro. The currency has not collapsed. And neither seems likely in 2013.

The European Union created a single currency without a single state. The 1992 Maastricht Treaty obliges most EU member states to adopt the euro upon meeting certain monetary and budgetary convergence criteria, although not all states have done so. Herein lies the problem.

The politicians could not tackle the state issue in the 1990s and Each EU country was meant to be responsible for its own budget and economic policies with rules to stop them running up too much debt. There were to be hard fiscal criteria’s and no collective bail-outs. Yet gradually cleaning up fiscal mess has become more of a joint exercise in the EU, to be paid by tax payers in the stronger economies.

The fundamentals of southern Europe’s austerity trap and the intractable levels of low growth, unemployment and the social crisis it is creating remains and will get worse. Greece continues to slip towards ungovernability. Now France looks set to tip economically into the southern European camp.

RecessionAccording to Financial Times this week, the ECB says the euro zone went into recession in late 2012 and will recover only slowly in late 2013. The recession is deeper in the troubled periphery and unemployment is still rising. Unless growth returns, government budget deficits will be harder to close, the debt burden will grow and banks will stay vulnerable.

As we have previously written on this blog, some politicians in European countries call for centralizing more fiscal policymaking in Brussels under a European Minister of Finance. We believe a sustainable path to recovery is to be found in more local initiatives, as guided by the European Union in the new framework of regional smart specialization.

Instead of the current overconfidence in centralization, politicians should go for decentralization and encourage places and regions in Europe to develop their local attraction forces and rebuild European wealth from the local places.

Selected European Clusters

Europe needs to recover and grow from its roots, from the local entrepreneurs, places and regions where entrepreneurial individuals and businesses can find the right climate. The initiative is no longer with the national level politicians. It is the task for the numerous European place managers and entrepreneurs to make this happen.

Given survival of the Euro, a Europe with economic growth from its roots and the unified common market will allow for continued prosperity.

Click below for a document from the ECB, about how the Euro became our money.

 

Here is a chart showing development of Euro interest rates in the EU. Click on the chart so see a larger version.

EU interest rates

Below is a five minute video about the background and development of the Euro.

History of the Euro

About Jörgen Eriksson :