Euro

Euro

Overview
The euro is the official currency of the eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union
Institutions of the European Union
The European Union is governed by seven institutions. Article 13 of Treaty on European Union lists them in the following order: the European Parliament, the European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union, the European...

. The eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

 consists of Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

, Cyprus
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...

, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...

, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

, Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

, Malta
Malta
Malta , officially known as the Republic of Malta , is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya, with Gibraltar to the west and Alexandria to the east.Malta covers just over in...

, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

, Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

, Slovenia
Slovenia
Slovenia , officially the Republic of Slovenia , is a country in Central and Southeastern Europe touching the Alps and bordering the Mediterranean. Slovenia borders Italy to the west, Croatia to the south and east, Hungary to the northeast, and Austria to the north, and also has a small portion of...

, and Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

. The currency is also used in a further five European countries (Montenegro
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...

, Andorra
Andorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...

, Monaco
Monaco
Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...

, San Marino
San Marino
San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...

 and Vatican City
Vatican City
Vatican City , or Vatican City State, in Italian officially Stato della Città del Vaticano , which translates literally as State of the City of the Vatican, is a landlocked sovereign city-state whose territory consists of a walled enclave within the city of Rome, Italy. It has an area of...

) and the disputed territory of Kosovo
Kosovo
Kosovo is a region in southeastern Europe. Part of the Ottoman Empire for more than five centuries, later the Autonomous Province of Kosovo and Metohija within Serbia...

. It is consequently used daily by some 332 million Europeans. Additionally, over 175 million people worldwide use currencies which are pegged
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...

 to the euro, including more than 150 million people in Africa.

The euro is the second largest reserve currency
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...

 as well as the second most traded currency in the world after the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

.
, with nearly €890 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation
Circulation (currency)
The social system in which we live has usually developed to the stage for money to be used as the medium for the exchange of goods and services. Hence the money is an important aspect of the general social or macroeconomics system...

 in the world, having surpassed the U.S.
Discussion
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Unanswered Questions
Encyclopedia
The euro is the official currency of the eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union
Institutions of the European Union
The European Union is governed by seven institutions. Article 13 of Treaty on European Union lists them in the following order: the European Parliament, the European Council, the Council of the European Union, the European Commission, the Court of Justice of the European Union, the European...

. The eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

 consists of Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

, Cyprus
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...

, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...

, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

, Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

, Malta
Malta
Malta , officially known as the Republic of Malta , is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya, with Gibraltar to the west and Alexandria to the east.Malta covers just over in...

, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

, Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

, Slovenia
Slovenia
Slovenia , officially the Republic of Slovenia , is a country in Central and Southeastern Europe touching the Alps and bordering the Mediterranean. Slovenia borders Italy to the west, Croatia to the south and east, Hungary to the northeast, and Austria to the north, and also has a small portion of...

, and Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

. The currency is also used in a further five European countries (Montenegro
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...

, Andorra
Andorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...

, Monaco
Monaco
Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...

, San Marino
San Marino
San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...

 and Vatican City
Vatican City
Vatican City , or Vatican City State, in Italian officially Stato della Città del Vaticano , which translates literally as State of the City of the Vatican, is a landlocked sovereign city-state whose territory consists of a walled enclave within the city of Rome, Italy. It has an area of...

) and the disputed territory of Kosovo
Kosovo
Kosovo is a region in southeastern Europe. Part of the Ottoman Empire for more than five centuries, later the Autonomous Province of Kosovo and Metohija within Serbia...

. It is consequently used daily by some 332 million Europeans. Additionally, over 175 million people worldwide use currencies which are pegged
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...

 to the euro, including more than 150 million people in Africa.

The euro is the second largest reserve currency
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...

 as well as the second most traded currency in the world after the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

.
, with nearly €890 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation
Circulation (currency)
The social system in which we live has usually developed to the stage for money to be used as the medium for the exchange of goods and services. Hence the money is an important aspect of the general social or macroeconomics system...

 in the world, having surpassed the U.S. dollar.:

Total EUR currency (coins and banknotes) in circulation 771.5 (banknotes) + 21.032 (coins) =792.53 billion EUR * 1.48 (exchange rate) = 1,080 billion USD

Total USD currency (coins and banknotes) in circulation 859 billion USD

Based on International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

 estimates of 2008 GDP and purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...

 among the various currencies, the eurozone is the second largest economy in the world.

The name euro was officially adopted on 16 December 1995. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit
European Currency Unit
The European Currency Unit was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13...

 (ECU) at a ratio of 1:1. Euro coin
Coin
A coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....

s and banknote
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...

s entered circulation on 1 January 2002.

Since late 2009 the euro has been immersed in the European sovereign debt crisis which has led to the creation of the European Financial Stability Facility
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...

.

Administration




The euro is managed and administered by the Frankfurt
Frankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...

-based European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...

 (ECB) and the Eurosystem
Eurosystem
The Eurosystem is the monetary authority of the Eurozone, the collective of European Union member states that have adopted the euro as their sole official currency...

 (composed of the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

s of the eurozone countries). As an independent central bank, the ECB has sole authority to set monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

. The Eurosystem participates in the printing, minting and distribution of notes
Euro banknotes
Euro banknotes are the banknotes of the euro, the currency of the eurozone and have been in circulation since 2002. They are issued by the national central banks of the euro area or the European Central Bank...

 and coins
Euro coins
There are eight euro coin denominations, ranging from one cent to two euros . The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different...

 in all member states, and the operation of the eurozone payment systems.

The 1992 Maastricht Treaty
Maastricht Treaty
The Maastricht Treaty was signed on 7 February 1992 by the members of the European Community in Maastricht, Netherlands. On 9–10 December 1991, the same city hosted the European Council which drafted the treaty...

 obliges most EU member states to adopt the euro upon meeting certain monetary and budgetary requirements
Convergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...

, although not all states have done so. The United Kingdom and Denmark negotiated exemptions, while Sweden (which joined the EU in 1995, after the Maastricht Treaty was signed) turned down the euro in a 2003 referendum, and has circumvented the obligation to adopt the euro by not meeting the monetary and budgetary requirements. All nations that have joined the EU since 1993 have pledged to adopt the euro in due course.

Coins and banknotes




The euro is divided into 100 cents
Cent (currency)
In many national currencies, the cent is a monetary unit that equals 1⁄100 of the basic monetary unit. Etymologically, the word cent derives from the Latin word "centum" meaning hundred. Cent also refers to a coin which is worth one cent....

 (sometimes referred to as euro cents, especially when distinguishing them from other currencies, and referred to as such on the common side of all cent coins). In Community legislative acts the plural forms of euro and cent are spelled without the s, notwithstanding normal English usage. Otherwise, normal English plurals are recommended and used, with many local variations
Linguistic issues concerning the euro
Several linguistic issues have arisen in relation to the spelling of the words euro and cent in the many languages of the member states of the European Union, as well as in relation to grammar and the formation of plurals....

 such as 'centime' in France.

All circulating coins have a common side showing the denomination or value, and a map in the background. Due to the linguistic plurality of the Europe
Languages of the European Union
The languages of the European Union are languages used by people within the member states of the European Union. They include the twenty-three official languages of the European Union along with a range of others...

, the Latin alphabet version of euro is used (as opposed to the less common Greek or Cyrillic) and Arabic numerals
Arabic numerals
Arabic numerals or Hindu numerals or Hindu-Arabic numerals or Indo-Arabic numerals are the ten digits . They are descended from the Hindu-Arabic numeral system developed by Indian mathematicians, in which a sequence of digits such as "975" is read as a numeral...

 (other text is used on national sides in national languages, but other text on the common side is avoided). For the denominations except the 1-, 2- and 5-cent coins, that map only showed the 15 member states which were members when the euro was introduced. Beginning in 2007 or 2008 (depending on the country) the old map is being replaced by a map of Europe also showing countries outside the Union like Norway. The 1-, 2- and 5-cent coins, however, keep their old design, showing a geographical map of Europe with the 15 member states of 2002 raised somewhat above the rest of the map. All common sides were designed by Luc Luycx
Luc Luycx
Luc Luycx is the designer of the common side of the euro coins.Luycx is a computer engineer living in Dendermonde, Belgium and has worked for the Royal Belgian Mint for 15 years. He designed the euro coins in 1996.His signature on all euro coins is visible as two L letters connected together...

. The coins also have a national side showing an image specifically chosen by the country that issued the coin. Euro coins from any member state may be freely used in any nation which has adopted the euro.

The coins are issued in €2
2 euro coins
2 euro coins are made of two alloys: the inner part of nickel brass, the outer part of copper-nickel. All coins have a common reverse side and country-specific national sides...

, €1
1 euro coins
1 euro coins are made of two alloys: the inner part of cupronickel, the outer part of nickel brass. All coins have a common reverse side and country-specific national sides...

, 50c
50 cent euro coins
50 cent euro coins have a value of half a euro and are composed of an alloy called nordic gold. All coins have a common reverse side and country-specific national sides...

, 20c
20 cent euro coins
20 cent euro coins have a value of one fifth of a euro and are composed of an alloy called nordic gold in the Spanish flower shape. All coins have a common reverse side and country-specific national sides...

, 10c
10 cent euro coins
10 cent euro coins have a value of one tenth of a euro and are composed of an alloy called nordic gold. All coins have a common reverse side and country-specific national sides...

, 5c
5 cent euro coins
5 cent euro coins have a value of one twentieth of a euro and are composed of copper-covered steel. All coins have a common reverse and country-specific obverse...

, 2c
2 cent euro coins
2 cent euro coins have a value of one-fiftieth of a euro and are composed of copper-covered steel. All coins have a common reverse and country-specific obverse...

, and 1c
1 cent euro coins
1 cent euro coins have a value of one-hundredth of a euro and are composed of copper-covered steel. All coins have a common reverse and country-specific obverse...

 denominations. In order to avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands (by voluntary agreement) and in Finland (by law). This practice is discouraged by the Commission, as is the practice of certain shops to refuse to accept high value euro notes.

Commemorative coins
€2 commemorative coins
€2 commemorative coins are special euro coins minted and issued by member states of the eurozone since 2004 as legal tender in all eurozone member states. The coins typically commemorate the anniversaries of historical events or draw attention to current events of special importance...

 with €2 face value have been issued with changes to the design of the national side of the coin. These include both commonly issued coins, such as the €2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, and nationally issued coins, such as the coin to commemorate the 2004 Summer Olympics
2004 Summer Olympics
The 2004 Summer Olympic Games, officially known as the Games of the XXVIII Olympiad, was a premier international multi-sport event held in Athens, Greece from August 13 to August 29, 2004 with the motto Welcome Home. 10,625 athletes competed, some 600 more than expected, accompanied by 5,501 team...

 issued by Greece. These coins are legal tender throughout the eurozone. Collector's coins with various other denominations have been issued as well, but these are not intended for general circulation, and they are legal tender only in the member state that issued them.

The design for the euro banknotes
Euro banknotes
Euro banknotes are the banknotes of the euro, the currency of the eurozone and have been in circulation since 2002. They are issued by the national central banks of the euro area or the European Central Bank...

 has common designs on both sides. The design was created by the Austrian designer Robert Kalina
Robert Kalina
Robert Kalina from the National Bank of Austria created the T 382 design, which was the winning design of the 1996 competition for the art shown on the euro banknotes. Kalina's design was chosen by the EMI Council on 3 December 1996...

. Notes are issued in €500
500 euro note
The five hundred euro note is the highest value euro banknote and has been used since the introduction of the euro in 2002....

, €200
200 euro note
The two hundred euro note is the second-highest value euro banknote and has been used since the introduction of the euro in 2002....

, €100
100 euro note
The one hundred euro note is one of the higher value euro banknotes and has been used since the introduction of the euro in 2002. The hundred euro note is the third largest at 147 x 82mm with a green colour scheme. The architectural style depicted in the hundred euro note shows the Baroque and...

, €50
50 euro note
The fifty euro note is one of the middle value euro banknotes and has been used since the introduction of the euro in 2002....

, €20
20 euro note
The twenty euro note is one of the middle value euro banknotes and has been used since the introduction of the euro in 2002. The twenty euro note is the third smallest at 133 x 72mm with a blue colour scheme. The twenty euro note shows the gothic era . It is consequently used daily by some...

, €10
10 euro note
The ten euro note is the second lowest value of the euro banknotes after the five euro note and has been used since the introduction of the euro in 2002. The ten euro note is the second smallest at 127x67mm with a red colour scheme. The ten euro note shows the Romanesque era...

, €5
5 euro note
The five euro note is the lowest value of the euro banknotes and has been used since the introduction of the euro in 2002. The five euro note is the smallest at with a grey colour scheme. The five euro note shows the Classical era...

. Each banknote has its own colour and is dedicated to an artistic period of European architecture. The front of the note features windows or gateways while the back has bridges. While the designs are supposed to be devoid of any identifiable characteristics, the initial designs by Robert Kalina
Robert Kalina
Robert Kalina from the National Bank of Austria created the T 382 design, which was the winning design of the 1996 competition for the art shown on the euro banknotes. Kalina's design was chosen by the EMI Council on 3 December 1996...

 were of specific bridges, including the Rialto
Rialto
The Rialto is and has been for many centuries the financial and commercial centre of Venice. It is an area of the San Polo sestiere of Venice, Italy, also known for its markets and for the Rialto Bridge across the Grand Canal....

  and the Pont de Neuilly
Pont de Neuilly
Le pont de Neuilly is a road and rail bridge carrying Route nationale 13 and Paris Métro Line 1 which crosses the River Seine between the right bank of Neuilly-sur-Seine and Courbevoie and Puteaux on the left bank in the French department of Hauts-de-Seine...

, and were subsequently rendered more generic; the final designs still bear very close similarities to their specific prototypes; thus they are not truly generic.

Payments clearing, electronic funds transfer



Capital within the EU may be transferred in any amount from one country to another. All intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs. This includes all member states of the EU, even those outside the eurozone providing the transactions are carried out in euro. Credit/debit card charging and ATM withdrawals within the eurozone are also charged as domestic, however paper-based payment orders, like cheques, have not been standardised so these are still domestic-based. The ECB has also set up a clearing system
Clearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....

, TARGET
TARGET
TARGET was an interbank payment system for the real-time processing of cross-border transfers throughout the European Union. It included 16 national real-time gross settlement systems and the ECB payment mechanism...

, for large euro transactions.

Currency sign




A special euro currency sign
Euro sign
The euro sign is the currency sign used for the euro, the official currency of the Eurozone in the European Union . The design was presented to the public by the European Commission on 12 December 1996. The international three-letter code for the euro is EUR...

 (€) was designed after a public survey had narrowed the original ten proposals down to two. The European Commission then chose the design created by the Belgian Alain Billiet. The official story of the design history of the euro sign is disputed by Arthur Eisenmenger
Arthur Eisenmenger
Arthur Eisenmenger is a German former chief graphic designer for the European Community.Amongst his artistic creations are implementation of the European flag, the CE mark, and possibly the euro sign .-References:...

, a former chief graphic designer for the EEC, who claims to have created it as a generic symbol of Europe.
The European Commission also specified a euro logo with exact proportions and foreground/background colour tones. While the Commission intended the logo to be a prescribed glyph shape, font designers made it clear that they intended to design their own variants instead. Typewriter
Typewriter
A typewriter is a mechanical or electromechanical device with keys that, when pressed, cause characters to be printed on a medium, usually paper. Typically one character is printed per keypress, and the machine prints the characters by making ink impressions of type elements similar to the pieces...

s lacking the euro sign can create it by typing a capital 'C', backspacing and overstriking
Overstrike
In typography, overstrike is a method of printing characters that are missing from the printer's character set. It was widely used around the early 1990s...

 it with the equal ('=') sign. Placement of the currency sign relative to the numeric amount varies from nation to nation, but for texts in English the symbol (and the ISO
International Organization for Standardization
The International Organization for Standardization , widely known as ISO, is an international standard-setting body composed of representatives from various national standards organizations. Founded on February 23, 1947, the organization promulgates worldwide proprietary, industrial and commercial...

-standard "EUR") should precede the amount.

Introduction of the euro


The euro was established by the provisions in the 1992 Maastricht Treaty
Maastricht Treaty
The Maastricht Treaty was signed on 7 February 1992 by the members of the European Community in Maastricht, Netherlands. On 9–10 December 1991, the same city hosted the European Council which drafted the treaty...

. To participate in the currency, member states are meant to meet strict criteria
Convergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...

, such as a budget deficit of less than three per cent of their GDP, a debt ratio of less than sixty per cent of GDP (both of which were ultimately widely flouted after introduction), low inflation, and interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 rates close to the EU average. In the Maastricht Treaty, the United Kingdom and Denmark were granted exemptions per their request from moving to the stage of monetary union which would result in the introduction of the euro.

Economists who helped create or contributed to the euro include Fred Arditti, Neil Dowling, Wim Duisenberg
Wim Duisenberg
Willem Frederik "Wim" Duisenberg was a Dutch politician of the Labour Party . He was the first President of the European Central Bank from 1 July 1998 until 31 October 2003. He was instrumental in the Introduction of the euro in the European Union in 2002. He was also credited for making numerous...

, Robert Mundell
Robert Mundell
Robert Mundell, CC is a Nobel Prize-winning Canadian economist. Currently, Mundell is a professor of economics at Columbia University and the Chinese University of Hong Kong....

, Tommaso Padoa-Schioppa
Tommaso Padoa-Schioppa
Tommaso Padoa-Schioppa , Knight Grand Cross was a well-known pro-European Italian banker and economist who was Italy's Minister of Economy and Finance from May 2006 until May 2008...

 and Robert Tollison
Robert Tollison
Robert D. Tollison is an American economist who specializes in public choice theory.-Education:A native of Spartanburg, South Carolina, Tollison attended local Wofford College where he earned an A.B. in business administration and economics in 1964. He completed an M.A. in economics at the...

. (For macro-economic theory, see below.)

The name "euro" was officially adopted in Madrid
Madrid
Madrid is the capital and largest city of Spain. The population of the city is roughly 3.3 million and the entire population of the Madrid metropolitan area is calculated to be 6.271 million. It is the third largest city in the European Union, after London and Berlin, and its metropolitan...

 on 16 December 1995. Belgian Esperantist
Esperantist
An Esperantist is a person who speaks or uses Esperanto. Etymologically, an Esperantist is someone who hopes...

 Germain Pirlot
Germain Pirlot
Germain Pirlot is a Belgian esperantist and ex-teacher of French and history, presently living in Ostend. He is mostly known as the probable inventor of the name euro for the common currency of the European Union...

, a former teacher of French and history is credited of naming the new currency by sending a letter to then President of the European Commission, Jacques Santer, suggesting the name "euro" on 4 August 1995.

Due to differences in national conventions for rounding and significant digits, all conversion between the national currencies had to be carried out using the process of triangulation via the euro. The definitive values of one euro in terms of these subdivisions (which represent the exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

s at which the currency entered the euro) are shown at right.

The rates were determined by the Council of the European Union, based on a recommendation from the European Commission based on the market rates on 31 December 1998. They were set so that one European Currency Unit
European Currency Unit
The European Currency Unit was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13...

 (ECU) would equal one euro. The European Currency Unit was an accounting unit used by the EU, based on the currencies of the member states; it was not a currency in its own right. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

) that day.

The procedure used to fix the irrevocable conversion rate between the Greek drachma
Greek drachma
Drachma, pl. drachmas or drachmae was the currency used in Greece during several periods in its history:...

 and the euro was different, since the euro by then was already two years old. While the conversion rates for the initial eleven currencies were determined only hours before the euro was introduced, the conversion rate for the Greek drachma was fixed several months beforehand.

The currency was introduced in non-physical form (traveller's cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the eurozone) ceased to exist independently. Their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro. The euro thus became the successor to the European Currency Unit
European Currency Unit
The European Currency Unit was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13...

 (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....

 until new euro notes and coins were introduced on 1 January 2002.

The changeover period during which the former currencies' notes and coins were exchanged for those of the euro lasted about two months, until 28 February 2002. The official date on which the national currencies ceased to be legal tender varied from member state to member state. The earliest date was in Germany, where the mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted for two months more. Even after the old currencies ceased to be legal tender, they continued to be accepted by national central banks for periods ranging from several years to forever (the latter in Austria, Germany, Ireland and Spain). The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.

Direct and indirect usage


Direct usage


The euro is the sole currency of 17 EU member states: Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

, Cyprus
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...

, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...

, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...

, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...

, Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

, Malta
Malta
Malta , officially known as the Republic of Malta , is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya, with Gibraltar to the west and Alexandria to the east.Malta covers just over in...

, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

, Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...

, Slovenia
Slovenia
Slovenia , officially the Republic of Slovenia , is a country in Central and Southeastern Europe touching the Alps and bordering the Mediterranean. Slovenia borders Italy to the west, Croatia to the south and east, Hungary to the northeast, and Austria to the north, and also has a small portion of...

, and Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...

. These countries comprise the "eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

", some 326 million people in total.

With all but two of the remaining EU members obliged to join, together with future members of the EU, the enlargement of the eurozone
Enlargement of the eurozone
The enlargement of the eurozone is a continuing process within the European Union . All member states of the EU, except for Denmark, the United Kingdom and de facto Sweden, are obliged to adopt the euro as their sole currency when they meet the criteria...

 is set to continue further. Outside the EU, the euro is also the sole currency of Montenegro
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...

 and Kosovo
Kosovo
Kosovo is a region in southeastern Europe. Part of the Ottoman Empire for more than five centuries, later the Autonomous Province of Kosovo and Metohija within Serbia...

 and several European micro states (Andorra
Andorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...

, Monaco
Monaco
Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...

, San Marino
San Marino
San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...

 and the Vatican City
Vatican City
Vatican City , or Vatican City State, in Italian officially Stato della Città del Vaticano , which translates literally as State of the City of the Vatican, is a landlocked sovereign city-state whose territory consists of a walled enclave within the city of Rome, Italy. It has an area of...

) as well as in three overseas territories of EU states that are not themselves part of the EU (Mayotte
Mayotte
Mayotte is an overseas department and region of France consisting of a main island, Grande-Terre , a smaller island, Petite-Terre , and several islets around these two. The archipelago is located in the northern Mozambique Channel in the Indian Ocean, namely between northwestern Madagascar and...

, Saint Pierre and Miquelon and Akrotiri and Dhekelia
Akrotiri and Dhekelia
The Sovereign Base Areas of Akrotiri and Dhekelia are two British-administered areas comprising a British Overseas Territory on the island of Cyprus administered as Sovereign Base Areas of the United Kingdom...

). Together this direct usage of the euro outside the EU affects over 3 million people.

It is also gaining increasing international usage as a trading currency, in Cuba, North Korea and Syria. There are also various currencies pegged to the euro (see below). In 2009 Zimbabwe abandoned its local currency
Zimbabwean dollar
The Zimbabwean dollar was the official currency of Zimbabwe from 1980 to 12 April 2009....

 and used major currencies instead, including the euro and the United States dollar.

Use as reserve currency


Since its introduction, the euro has been the second most widely held international reserve currency
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...

 after the U.S. dollar. The share of the euro as a reserve currency has increased from 17.9% in 1999 to 26.5% in 2008, at the expense of the U.S. dollar (its share fell from 70.9% to 64.0% in the same timeframe) and the Yen (it fell from 6.4% to 3.3%). The euro inherited and built on the status of the second most important reserve currency from the Deutsche Mark. The euro remains underweight as a reserve currency in advanced economies while overweight in emerging and developing economies: according to the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

 the total of euro held as a reserve in the world at the end of 2008 was equal to USD 1.1 trillion or €850 billion, with a share of 22% of all currency reserves in advanced economies, but a total of 31% of all currency reserves in emerging and developing economies.

The possibility of the euro becoming the first international reserve currency is now widely debated among economists.
Former Federal Reserve Chairman Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

 gave his opinion in September 2007 that it is "absolutely conceivable that the euro will replace the US dollar as reserve currency, or will be traded as an equally important reserve currency." In contrast to Greenspan's 2007 assessment the euro's increase in the share of the worldwide currency reserve basket has slowed considerably since the year 2007 and since the beginning of the worldwide credit crunch
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...

 related recession and sovereign debt crisis
2010 European sovereign debt crisis
From late 2009, fears of a sovereign debt crisis developed among investors concerning some European states, intensifying in early 2010 and thereafter.....

.

Currencies pegged to the euro



Outside the eurozone, a total of 23 countries and territories that do not belong to the EU have currencies that are directly pegged to the euro including 14 countries in mainland Africa (CFA franc
CFA franc
The CFA franc is the name of two currencies used in Africa which are guaranteed by the French treasury. The two CFA franc currencies are the West African CFA franc and the Central African CFA franc...

 and Moroccan dirham
Moroccan dirham
The dirham is the currency of Morocco. The plural form is pronounced darahim, although in French and English "dirhams" is commonly used. Its ISO 4217 code is "MAD". It is subdivided into 100 santimat . The dirham is issued by the Bank Al-Maghrib, the central bank of Morocco...

), two African island countries (Comorian franc
Comorian franc
The franc is the official currency of Comoros. It is nominally subdivided into 100 centimes, although no centime denominations have ever been issued.-History:...

 and Cape Verdean escudo), three French Pacific territories (CFP franc
CFP franc
The CFP franc is the currency used in the French overseas collectivities of French Polynesia, New Caledonia and Wallis and Futuna. The initials CFP originally stood for Colonies Françaises du Pacifique...

) and another Balkan country, Bosnia and Herzegovina (Bosnia and Herzegovina convertible mark
Bosnia and Herzegovina convertible mark
The Bosnia and Herzegovina convertible mark is the currency of Bosnia and Herzegovina. It is divided into 100 fenings...

). On 28 July 2009, São Tomé and Príncipe signed an agreement with Portugal which will eventually tie its currency to the euro.

With the exception of Bosnia (which pegged its currency against the Deutsche Mark) and Cape Verde (formerly pegged to the Portuguese escudo) all of these non-EU countries had a currency peg to the French Franc before pegging their currencies to the euro. Pegging a country's currency to a major currency is regarded as a safety measure, especially for currencies of areas with weak economies, as the euro is seen as a stable currency, prevents runaway inflation and encourages foreign investment due to its stability.

Within the EU several currencies have a peg to the euro, in most instances as a precondition to joining the eurozone. The Bulgarian Lev
Bulgarian lev
The lev is the currency of Bulgaria. It is divided in 100 stotinki . In archaic Bulgarian the word "lev" meant "lion".It is speculated that Bulgaria, as a member of the European Union will adopt the Euro in 2015 .- First lev, 1881–1952 :...

 was formerly pegged to the Deutsche Mark, other EU memberstates have a direct peg due to ERM II: the Danish krone
Danish krone
The krone is the official currency of the Kingdom of Denmark consisting of Denmark, the Faroe Islands and Greenland. It is subdivided into 100 øre...

, the Lithuanian litas
Lithuanian litas
The Lithuanian litas is the currency of Lithuania. It is divided into 100 centų...

 and the Latvian lats
Latvian lats
The lats is the currency of Latvia. It is abbreviated as Ls. The lats is sub-divided into 100 santīmi ....

.

In total, over 150 million people in Africa use a currency pegged to the euro, 25 million people outside the eurozone in Europe and another 500,000 people on Pacific islands.

Optimal currency area



In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are two models, both proposed by Robert Mundell
Robert Mundell
Robert Mundell, CC is a Nobel Prize-winning Canadian economist. Currently, Mundell is a professor of economics at Columbia University and the Chinese University of Hong Kong....

: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro. However, even before the creation of the single currency, there were concerns over diverging economies. Before the Late-2000s recession the chances of a state leaving the euro, or the chances that the whole zone would collapse, were considered extremely slim. However the Greek sovereign debt crisis led to former British foreign secretary Jack Straw
Jack Straw
Jack Straw , British politician.Jack Straw may also refer to:* Jack Straw , English* "Jack Straw" , 1971 song by the Grateful Dead* Jack Straw by W...

 claiming the Eurozone could not last in its current form. Part of the problem seems to be the rules that were created when the Euro was set up. John Lanchester, writing for The New Yorker explains it thusly:

The guiding principle of the currency, which opened for business in 1999, were supposed to be a set of rules to limit a country's annual deficit to three per cent of gross domestic product, and the total accumulated debt to sixty per cent of G.D.P. It was a nice idea, but by 2004 the two biggest economies in the euro zone, Germany and France, had broken the rules for three years in a row.

Transaction costs and risks



The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g., credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...

s, debit card
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...

s and cash machine
Cash Machine
"Cash Machine" is the debut single by English indie rock band Hard-Fi, taken from their debut album Stars of CCTV. It was originally released on 24 January 2005, where it was ineligible in the UK Singles Chart due to the inclusion of a sticker...

 withdrawals).

The absence of distinct currencies also removes exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

 risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones. Companies that hedge
Hedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...

 against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations.

Financial markets on the continent are expected to be far more liquid
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...

 and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone.

Price parity


Another effect of the common European currency is that differences in prices – in particular in price levels – should decrease because of the 'law of one price
Law of one price
The law of one price is an economic law stated as: "In an efficient market, all identical goods must have only one price."-Intuition:The intuition for this law is that all sellers will flock to the highest prevailing price, and all buyers to the lowest current market price. In an efficient market...

'. Differences in prices can trigger arbitrage
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...

, i.e. speculative
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...

 trade in a commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....

 across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific eurozone markets.

Macroeconomic stability


Low levels of inflation are the hallmark of stable and modern economies. Because a high level of inflation acts as a tax (seigniorage
Seigniorage
Seigniorage can have the following two meanings:* Seigniorage derived from specie—metal coins, is a tax, added to the total price of a coin , that a customer of the mint had to pay to the mint, and that was sent to the sovereign of the political area.* Seigniorage derived from notes is more...

) and theoretically discourages investment, it is generally viewed as undesirable. In spite of the downside, many countries have been unable or unwilling to deal with serious inflationary pressures. Some countries have successfully contained them by establishing largely independent central banks. One such bank was the Bundesbank in Germany; as the European Central Bank is modelled on the Bundesbank, it is independent of the pressures of national governments and has a mandate to keep inflation low. Member countries that join the euro hope to enjoy the macroeconomic stability associated with low levels of inflation. The ECB (unlike the Federal Reserve
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

 in the United States of America) does not have a second objective to sustain growth and employment.

Many national and corporate bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 denominated in euro are significantly more liquid and have lower interest rates than was historically the case when denominated in national currencies. While increased liquidity may lower the nominal interest rate
Nominal interest rate
In finance and economics nominal interest rate or nominal rate of interest refers to the rate of interest before adjustment for inflation ; or, for interest rates "as stated" without adjustment for the full effect of compounding...

 on the bond, denominating the bond in a currency with low levels of inflation arguably plays a much larger role. A credible commitment to low levels of inflation and a stable debt reduces the risk that the value of the debt will be eroded by higher levels of inflation or default in the future, allowing debt to be issued at a lower nominal interest rate.

Trade


The consensus from the studies of the effect of the introduction of the euro is that it has increased trade within the eurozone by 5% to 10%. On the lower bound, one study suggested an increase of 3%. A recent study estimates this effect to be between 9 and 14%. Nevertheless, a recent meta-analysis
Meta-analysis
In statistics, a meta-analysis combines the results of several studies that address a set of related research hypotheses. In its simplest form, this is normally by identification of a common measure of effect size, for which a weighted average might be the output of a meta-analyses. Here the...

 of all available studies suggests that the prevalence of positive estimates is caused by publication bias
Publication bias
Publication bias is the tendency of researchers, editors, and pharmaceutical companies to handle the reporting of experimental results that are positive differently from results that are negative or inconclusive, leading to bias in the overall published literature...

 and that the underlying effect may be negligible.

Investment


Physical investment seems to have increased by 5% in the eurozone due to the introduction. Regarding foreign direct investment, a study found that the intra-eurozone FDI stocks have increased by about 20% during the first four years of the EMU. Concerning the effect on corporate investment, there is evidence that the introduction of the euro has resulted in an increase in investment rates and that it has made it easier for firms to access financing in Europe. The euro has most specifically stimulated investment in companies that come from countries that previously had weak currencies. A study found that the introduction of the euro accounts for 22% of the investment rate after 1998 in countries that previously had a weak currency.

Inflation


The introduction of the euro has led to extensive discussion about its possible effect on inflation. In the short term, there was a widespread impression in the population of the eurozone that the introduction of the euro had led to an increase in prices, but this impression was not confirmed by general indices of inflation and other studies. A study of this paradox found that this was due to an asymmetric effect of the introduction of the euro on prices: while it had no effect on most goods, it had an effect on cheap goods which have seen their price round up after the introduction of the euro. The study found that consumers based their beliefs on inflation of those cheap goods which are frequently purchased. It has also been suggested that the jump in small prices may be because prior to the introduction, retailers made fewer upward adjustments and waited for the introduction of the euro to do so.

Exchange rate risk


One of the advantages of the adoption of a common currency is the reduction of the risk associated with changes in currency exchange rates. It has been found that the introduction of the euro created "significant reductions in market risk exposures for nonfinancial firms both in and outside of Europe" These reductions in market risk "were concentrated in firms domiciled in the eurozone and in non-Euro firms with a high fraction of foreign sales or assets in Europe".

Financial integration


The introduction of the euro seems to have had a strong effect on European financial integration. According to a study on this question, it has "significantly reshaped the European financial system, especially with respect to the securities markets [...] However, the real and policy barriers to integration in the retail and corporate banking sectors remain significant, even if the wholesale end of banking has been largely integrated." Specifically, the euro has significantly decreased the cost of trade in bonds, equity, and banking assets within the eurozone.

On a global level, there is evidence that the introduction of the euro has led to an integration in terms of investment in bond portfolios, with eurozone countries lending and borrowing more between each other than with other countries.

Effect on interest rates



The introduction of the euro has decreased the interest rates of most members countries, in particular those with a weak currency. As a consequence the market value of firms from countries which previously had a weak currency has very significantly increased. The countries whose interest rates fell most as a result of the euro are Greece, Ireland, Portugal, Spain, and Italy.
The effect of such low interest rates made it easier for banks within the countries in which interest rates fell and the countries themselves to borrow significant amounts (above the 3% of GDP budget deficit imposed on the eurozone initially) and increase their public deficit and levels of privately held consumer debt. Following the Late-2000s financial crisis
Late-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...

, governments in these countries found it necessary to bail out or nationalise their privately held banks in order to prevent systemic failure of the banking system. This further increased the already high levels of public debt to a level the markets began to consider unsustainable, via increasing government bond interest rates, producing the ongoing 2010/11 European sovereign debt crisis.

Price convergence


The evidence on the convergence of prices in the eurozone with the introduction of the euro is mixed. Several studies failed to find any evidence of convergence following the introduction of the euro after a phase of convergence in the early 1990s. Other studies have found evidence of price convergence, in particular for cars. A possible reason for the divergence between the different studies is that the processes of convergence may not have been linear, slowing down substantially between
2000 and 2003, and resurfacing after 2003 as suggested by a recent study (2009).

Tourism


A study suggests that the introduction of the euro has had a positive effect on the amount of tourist travel within the EMU, with an increase of 6.5%.

European sovereign debt crisis


Following the US financial crisis in 2008, fears of a sovereign debt crisis developed in 2009 among fiscally conservative investors concerning some European states, with the situation becoming particularly tense in early 2010. This included euro zone members Greece
Economy of Greece
The economy of Greece is the 32nd largest in the world by nominal gross domestic product and the 37th largest at purchasing power parity , according to data by the World Bank for the year 2010...

, Ireland and Portugal
Economy of Portugal
The Economy of Portugal is a high income mixed economy. The Global Competitiveness Report 2008-2009 edition placed Portugal in the 43rd position out of 134 countries and territories....

 and also some EU
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 countries outside the area. Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...

, the country which experienced the largest crisis in 2008 when its entire international banking system collapsed, has emerged less affected by the sovereign debt crisis as the government was unable to bail the banks out. In the EU, especially in countries where sovereign debts have increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 yield spread
Yield spread
In finance, the yield spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.It is a compound of yield and spread....

s and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany. To be included in the eurozone, the countries had to fulfill certain convergence criteria
Convergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...

, but the meaningfulness of such criteria were diminished by the fact they have not been applied to different countries with the same strictness.

According to The Economist Intelligence Unit the economic and fiscal position of the euro area "looks no worse and in some respects, rather better than that of the US or the UK." The budget deficit for the euro area as a whole is much lower and the euro area's government debt/GDP ratio of 86% in 2010 was about the same level as that of the US. Moreover, private-sector indebtedness across the euro area is also markedly lower than in the highly leveraged Anglo-Saxon economies. The authors conclude that the crisis "is as much political as economic" and the result of the fact that the euro area lacks the support "institutional paraphernalia
Paraphernalia
In modern usage, the word paraphernalia most commonly refers to apparatus, equipment, or furnishing used in or necessary for a particular activity as in, "Beth is such an avid sports fan that her walls are covered with baseball paraphernalia"....

 (and mutual bonds of solidarity) of a state".

Exchange rates


Flexible exchange rates


The ECB targets interest rates rather than exchange rates and in general does not intervene on the foreign exchange rate markets, because of the implications of the Mundell-Fleming model
Mundell-Fleming model
The Mundell–Fleming model, also known as the IS-LM-BP model, is an economic model first set forth by Robert Mundell and Marcus Fleming. The model is an extension of the IS-LM model...

 which implies a central bank cannot maintain interest rate and exchange rate targets simultaneously, unless there are capital controls, because increasing the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

 results in a depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....

 of the currency. In the years following the Single European Act
Single European Act
The Single European Act was the first major revision of the 1957 Treaty of Rome. The Act set the European Community an objective of establishing a Single Market by 31 December 1992, and codified European Political Cooperation, the forerunner of the European Union's Common Foreign and Security Policy...

, the EU has liberalised its capital markets, and as the ECB has chosen monetary autonomy, the exchange rate regime
Exchange rate regime
The exchange-rate regime is the way a country manages its currency in relation to other currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors....

 of the euro is flexible, or floating
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....

.

Against other major currencies


The euro is one of the major reserve currencies
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...

 together with the US dollar, Japanese yen
Japanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...

, Pound sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

 and Swiss franc
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...

. After its introduction on 4 January 1999 its exchange rate against the other major currencies fell reaching its lowest exchange rates in 2000 (25 Oct vs the US Dollar, 26 Oct vs Japanese Yen, 3 May vs Pound Sterling). Afterwards it regained and its exchange rate reached its historical highest point in 2008 (15 July vs US Dollar, 23 July vs Japanese Yen, 29 Dec vs Pound Sterling). With the advent of the current global financial crisis
Late-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...

 the euro initially fell, only to regain later. Despite pressure due to the European sovereign debt crisis the euro remained stable. The euro's exchange rate index - measured against currencies of the bloc's major trading partners - is trading almost two percent higher on the year, approximately at the same level as it was before the crisis kicked off in 2007.

Linguistic issues



The formal titles of the currency are euro for the major unit and cent for the minor (one hundredth) unit and for official use in most eurozone languages; according to the ECB, all languages should use the same spelling for the nominative singular. This may contradict normal rules for word formation in some languages; e.g., those where there is no eu diphthong
Diphthong
A diphthong , also known as a gliding vowel, refers to two adjacent vowel sounds occurring within the same syllable. Technically, a diphthong is a vowel with two different targets: That is, the tongue moves during the pronunciation of the vowel...

. Bulgaria has negotiated an exception; euro in the Cyrillic alphabet is spelled as eвро (evro) and not eуро (euro) in all official documents. Official practice for English-language EU legislation is to use the words euro and cent as both singular and plural although the European Commission's Directorate-General for Translation
Directorate-General for Translation (European Commission)
The Directorate-General for Translation , located in Brussels and Luxembourg, provides translation of written text into and out of the European Union's twenty-three official languages. With an annual output of about 1.5 million pages, it is the largest translation service in the world, employing...

 states that the plural forms euros and cents should be used in English.

Alloys


The euro 1 and 2 coins are two-toned. The "gold" is an alloy
Alloy
An alloy is a mixture or metallic solid solution composed of two or more elements. Complete solid solution alloys give single solid phase microstructure, while partial solutions give two or more phases that may or may not be homogeneous in distribution, depending on thermal history...

, 75% copper, 20% zinc
Zinc
Zinc , or spelter , is a metallic chemical element; it has the symbol Zn and atomic number 30. It is the first element in group 12 of the periodic table. Zinc is, in some respects, chemically similar to magnesium, because its ion is of similar size and its only common oxidation state is +2...

 and 5% nickel. The "silver" is cupronickel
Cupronickel
Cupronickel or copper-nickel or "cupernickel" is an alloy of copper that contains nickel and strengthening elements, such as iron and manganese. Cupronickel is highly resistant to corrosion in seawater, because its electrode potential is adjusted to be neutral with regard to seawater...

, 75% copper, 25% nickel. The 10, 20 and 50-cent coins are a proprietary alloy known as "Nordic gold
Nordic gold
Nordic gold is the alloy from which the middle three denominations of euro coins, 50 cent, 20 cent, and 10 cent coins are made. It has also been in use for a number of years in other countries, most notably in the Swedish 10-krona coin...

", consisting of 89% copper, 5% aluminium, 5% zinc and 1% tin. The 1, 2 and 5-cent coins are copper-coated steel fourrée
Fourrée
A fourrée is a coin, most often a counterfeit, that is made from a base metal core that has been plated with a precious metal to look like its solid metal counter part. The term is normally applied to ancient silver plated coins such as the Roman denarius and Greek drachma, but the term is also...

s.

No constituent metal is toxic to human beings. The copper alloys make the coinage antimicrobial
Antimicrobial
An anti-microbial is a substance that kills or inhibits the growth of microorganisms such as bacteria, fungi, or protozoans. Antimicrobial drugs either kill microbes or prevent the growth of microbes...

. The nickel alloy could cause contact dermatitis
Contact dermatitis
Contact dermatitis is a term for a skin reaction resulting from exposure to allergens or irritants . Phototoxic dermatitis occurs when the allergen or irritant is activated by sunlight....

 in sensitive people, but this condition could only be a problem if a 1 or 2 euro is worn next to the skin for an extended period, perhaps as jewelry. The alloys are hypoallergenic
Hypoallergenic
Hypoallergenic, meaning "below normal" or "slightly" allergenic, was a term first used in a cosmetics campaign in 1953. It is used to describe items that cause or are claimed to cause fewer allergic reactions...

.

External links


Official websites
  • The euro – Europa
    Europa (web portal)
    Europa is the official web portal of the European Union . It is intended to improve the public’s interaction with EU institutions by quickly directing website visitors to the services or information they are seeking. Europa links to all EU agencies and institutions in addition to press releases...

  • European Central Bank


Other