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Eurozone (1999/2002)
European Union
Enlargement of the European Union 77.gif

This article is part of the series:
History of the
European Union

Pre-1945
See also
History of Europe
Enlargement - Treaties
Timeline - Presidents
  

The introduction of the euro took place principally between 31 December 1998, when the exchange rates between the euro and legacy currencies in the eurozone became fixed, and early 2002, when euro notes and coins were introduced and the legacy currencies withdrawn.

Since 2002, the eurozone has expanded by four countries.

Contents

Background (1992-1999)

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union that was used to establish an economic and monetary union. In order to participate in the new currency, member states had to meet strict criteria such as a budget deficit of less than 3% of their GDP, a debt ratio of less than 60% of GDP, low inflation, and interest rates close to the EU average.

Economists that helped create or contributed to the euro include Robert Mundell, Wim Duisenberg, Robert Tollison, Neil Dowling and Tommaso Padoa-Schioppa. (For macro-economic theory, see below.)

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 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, so that one ECU (European Currency Unit) 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.) These rates were set by Council Regulation 2866/98 (EC), of 31 December 1998. They could not be set earlier, because the ECU depended on the closing exchange rate of the non-euro currencies (principally the pound sterling) that day.

Preparation for transition to the euro

Preceding national currencies of the Eurozone   
Currency Code Rate Fixed on Yielded
Austria Austrian schilling ATS &0000000000000013.76030013.7603 01998-12-31 31 December 1998 2002
Belgium Belgian franc BEF &0000000000000040.33990040.3399 01998-12-31 31 December 1998 2002
Netherlands Dutch guilder NLG &0000000000000002.2037102.20371 01998-12-31 31 December 1998 2002
Finland Finnish markka FIM &0000000000000005.9457305.94573 01998-12-31 31 December 1998 2002
France French franc FRF &0000000000000006.5595706.55957 01998-12-31 31 December 1998 2002
Germany German mark DEM &0000000000000001.9558301.95583 01998-12-31 31 December 1998 2002
Republic of Ireland Irish pound IEP &0000000000000000.7875640.787564 01998-12-31 31 December 1998 2002
Italy Italian lira ITL &Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ","Expression error: Unrecognised punctuation character ",".Expression error: Unrecognised punctuation character ","1,936.27 01998-12-31 31 December 1998 2002
Luxembourg Luxembourgian franc LUF &0000000000000040.33990040.3399 01998-12-31 31 December 1998 2002
Portugal Portuguese escudo PTE &0000000000000200.482000200.482 01998-12-31 31 December 1998 2002
Spain Spanish peseta ESP &0000000000000166.386000166.386 01998-12-31 31 December 1998 2002
Greece Greek drachma GRD &0000000000000340.750000340.750[1] 02000-06-19 19 June 2000 2002
Slovenia Slovenian tolar SIT &0000000000000239.640000239.640[2] 02006-07-11 11 July 2006 2007
Cyprus Cypriot pound CYP &0000000000000000.5852740.585274[3] 02007-07-10 10 July 2007 2008
Malta Maltese lira MTL &0000000000000000.4293000.429300[4] 02007-07-10 10 July 2007 2008
Slovakia Slovak koruna SKK &0000000000000030.12600030.1260[5] 02008-07-08 8 July 2008 2009

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 in that 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 (ECU). The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.

Beginning on 1 January 1999, all bonds and other forms of government debt by Eurozone nations were denominated in euros.

The designs for the new coins and notes were announced between 1996 and 1998, and production began at the various mints and printers early in 1999. The task was large, and would require the full three years. In all, 7.4 billion notes and 38.2 billion coins would be available for issuance to consumers and businesses on 1 January 2002.[6] In 7 nations, the new coins, struck in the run-up to 1 January 2002, would bear a 2002 date. In Belgium, Finland, France, the Netherlands, and Spain, the new coins would bear the date of striking, so those 5 countries would be the only ones to strike euro coins dated 1999, 2000, and 2001.

Small numbers of coins from Monaco, Vatican City, and San Marino were also struck. These immediately became popular collector's items, commanding premiums well above face value. New issues continue to do so to this day.

Meanwhile, a parallel task was to educate the European public about the new coins. Posters were issued showing the designs, which were used on items ranging from playing cards to T shirts. As a final step, on 15 December 2001, banks began exchanging "euro starter kits", plastic pouches with a selection of the new coins in each country (generally, between 10 and 20 euros worth--though Finland's contained one of each coin, totalling €3.88). They would not be usable in commerce until 1 January, when notes would be made available as well. Larger starter kits, containing a roll of each denomination, were available as well in some nations.

Retailers and government agencies had a considerable task as well. For items to be sold to the public, dual pricing was commonly utilised. Postage stamps for governments (as well as stamps issued by the United Nations Postal Administration for the UN offices in Vienna) often bore denominations both in the legacy currency and euros, assuring continued utility beyond 2001.

Banks bore a huge task, not only in preparation for the change of the notes and coins, but also in the back office. Beginning in 1999, all deposits and loans were technically in euros, but deposits and withdrawals continued in the legacy currency. Statements would bear balances in both currencies beginning no later than 1 July 2001, and earlier if required by the customer's needs.

Beginning on 1 December 2001, coins and notes were distributed from secure storage, first to large retailers, and then to smaller ones.

It was widely expected that there would be massive problems on and after 1 January. Such a changeover, across twelve populous countries, had never been attempted before.

Change of currency

Euro banknotes and coins
The first Maltese coins were available to the public on 1 December 2007

As midnight struck to usher in 2002, a celebration took place outside European Central Bank offices in Frankfurt. A huge illuminated mock-up of a euro coin was displayed in front of the building.

When the celebration began, the new coins and notes had already been valid for one hour in Greece and Finland. In fact, they had been valid for three hours on the French island of Réunion in the Indian Ocean.[7] The first official purchase using euro coins and notes took place there, for one kilogram of lychees.[8] The coming of midnight in Frankfurt at the ECB offices, though, symbolised the transition.

In Finland, the Central Bank had opened for an hour at midnight to allow citizens to exchange currency, while a huge euro pyramid had decorated Syntagma Square in Athens, as the euro was welcomed to continental Europe. Other countries noted the coming of the euro as well--Paris's Pont Neuf was decorated in EU colours, while in the northern German town of Gifhorn a sombre, symbolic funeral for the Mark took place.

Except for Germany, the plan for introduction of the new currency was basically the same. Banks would accept the exchange of legacy currencies, begin to dispense euros from ATMs, and only euros would be available as withdrawals were made, beginning on 1 January. Merchants would accept legacy currency, but give change only in euros. In Germany, the Mark would no longer be a legal tender on 1 January, but would have to be exchanged at the banks.

Despite the massive amounts of euros available, chaos was feared. In France, these fears were accentuated by a threatened postal workers' strike.[9] The strike, however, was settled. Similarly, workers at the French bank BNP Paribas threatened to disrupt the introduction of euro currency with a strike. That was also settled.[10]

In practice, the roll-out was smooth, with few problems. By 2 January, all ATMs in 7 countries and at least 90 percent in 4 others were issuing euros rather than legacy currency, with Italy, the worst offender, having 85% of ATMs dispensing euros.[11] The unexpected tendency of consumers to spend their legacy currency, rather than exchange it at banks, led to temporary shortages of euro small change, with some consumers being given change in legacy currency.[12]

Some businesses did take advantage of the currency exchange to raise prices. According to a study by the Deutsche Bundesbank, there was a price rise, but consumers refused to buy as much. A coffee bar in Italy that took advantage of the transition to raise coffee prices by a third was ordered to pay compensation to customers.[13]

Aftermath

The Ecofin presenting the euro denominations 22 September 2001

Nations were allowed to keep legacy currency in circulation as legal tender for 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; the Mark officially ceased to be legal tender after 31 December 2001. Most member states, though, permitted their legacy currency to remain in circulation the full two months. The legacy currency was exchangeable at commercial banks in the currency's nation for a further period, generally until 30 June 2002.

However, even after the official dates, they continued to be accepted for exchange by national central banks for varying periods--and indefinitely in Austria, Germany, Ireland, and Spain. Coins from those four countries, Italy, and Finland remain exchangeable. 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. All banknotes current on 1 January 2002 will remain valid until at least 2012.[14]

Efforts to secure the return of German coins continue. In 2005, Deutsche Telekom modified 50,000 pay phones to take Deutsche Mark coins, at least on a temporary basis.[15] Callers were allowed to use DM coins, at least initially, with the Mark pegged to equal one euro, almost twice the usual rate.[16]

In France, receipts still indicate the value of products in the legacy currency along with the euro value, as do receipts in Slovenia. In other eurozone countries this has long been considered unnecessary.

In June 2008, The New York Times reported that many merchants in the French town of Collobrières, in Provence, choose to accept exchangeable franc notes.[17]

Expansion of the euro

Eurozone (2009)
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Greece

Greece joined the euro on 1 January 2001, after the initial launch in 1999 but before the introduction of notes and coins in 2002.

The procedure used to fix the irrevocable conversion rate of 340.750 between the Greek drachma 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 as a virtual currency, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC), of 19 June 2000.

Slovenia

  1. Participation in ERM II beginning 28 June 2004.[18]
  2. On 11 July 2006 the Council of EU adopted a decision allowing Slovenia to join the euro area as from 1 January 2007. [19]
  3. Introduction of the euro 1 January 2007.[18]
  4. Exchange rate 1 EUR = 239,640 SIT.[18]

Cyprus

  1. On 13 February 2007, the Republic of Cyprus formally applied to join the eurozone on 1 January 2008. The final decision was expected to be taken in Brussels on 21–22 June at an EU Summit to be ratified by all EU heads of state.[20]
  2. On 9 March 2007, the campaign to inform the citizens of Cyprus about the euro officially began in Cypriot media.
  3. On 15 March 2007, the House of Representatives passed the necessary laws for the introduction of the euro on 1 January 2008.
  4. On 16 May 2007, the Commissioner for Economic & Financial Affairs of the EU, Joaquín Almunia, recommended that Cyprus adopt the euro as scheduled.
  5. On 20 June 2007, the European Parliament voted affirmatively on this issue and on 21 June 2007, the date was confirmed by the EU leaders.
  6. On 10 July 2007, the EU Finance Ministers set the permanent exchange rate to CYP 0.585274 to 1 euro.
  7. On 23 October 2007, the designs were officially published in the Official Journal of the European Union.[21]
  8. On 1 January 2008 the euro replaced the Cypriot pound as the official currency.[22]

Malta

Valletta covered with floor designs of their new euro coins

On 16 May 2007, the Commissioner for Economic & Financial Affairs of the EU, Joaquín Almunia, recommended that Malta adopt the euro as scheduled, a decision later confirmed by the Council of Finance Ministers of 10 July 2007. On the same day, dual displaying became mandatory and the first Maltese euro coins were struck at Monnaie de Paris. The first Maltese euro coins were available for the public on 1 December 2007, as business starter packs worth €131 each started being available for small businesses to fill up their cash registers with sufficient amount of euro coins before the €-day (Jum €). Mini-kits each worth €11.65 were available for the general public on 10 December 2007.[23]

Maltese citizens could obtain euro information directly from their town or village between December 2007 and January 2008. From the Euro Centres (Ċentru l-ewro) which opened during the day. People trained specifically on matters related to the changeover to the euro were available to provide council at euro centres along with information materials.[24]

In December 2007, as part of the euro changeover celebrations, streets of Valletta were covered with carpets depicting euro coins. Celebrations reached climax on New Year’s Eve with a firework display near the Grand Harbour area, several other activities had to be moved indoors because of the stormy weather that struck the island on that night.

Maltese coins which were current at the time of the euro transition may be exchanged through 1 February 2010.[14]

Slovakia

Publicity for the transition from the koruna to the euro on 1 January 2009 included an "euromobile", with a professional actor driving around the countryside holding impromptu quiz shows about the euro. Winners received euro T shirts, euro conversion calculators, and chocolate euro coins.[25]

Euro starter kits, available for 500 koruna, were a popular Christmas gift in 2008. The coins therein, however, were not valid as legal tender in the Eurozone until 1 January 2009, with koruna exchanged through 17 January 2009, though redeemable at the central bank in Bratislava until a date to be determined. Anyone using Slovakian euro coins before 1 January could have been fined. Businesses using the transition to raise prices also were subject to penalty.[25]

References

  1. ^ Greece failed to meet the criteria for joining initially, so it did not join the common currency on 1 January 1999. It was admitted two years later, on 1 January 2001, with a Greek drachma (GRD) exchange rate of 340.750.
  2. ^ The final exchange rate was agreed on 11 July 2006. However, this rate was not formally effective until the tolar was succeeded by the euro on 1 January 2007.
  3. ^ The final exchange rate was agreed on 10 July 2007. However, this rate was not formally effective until the pound was succeeded by the euro on 1 January 2008.
  4. ^ The final exchange rate was agreed on 10 July 2007. However, this rate was not formally effective until the lira was succeeded by the euro on 1 January 2008.
  5. ^ The final exchange rate was agreed on 8 July 2008. However, this rate was not formally effective until the koruna was succeeded by the euro on 1 January 2009.
  6. ^ Ian Black (2002-12-20). "Living in a euro wonderland". http://www.guardian.co.uk/elsewhere/journalist/story/0,,863888,00.html. Retrieved 2007-03-05.  
  7. ^ Africa - Coins of Reunion
  8. ^ CNN.com - Euro facing post-holiday test - January 1, 2002
  9. ^ Euro chaos threatens France, BBC News
  10. ^ Bank offers pay rise to avert euro strike, BBC News
  11. ^ Euro cash launch 'tremendous success', BBC News
  12. ^ Euro sweeps up old currencies, BBC News
  13. ^ Germany puts price on euro switch, BBC News
  14. ^ a b Exchanging national cash, European Central Bank
  15. ^ German Phones to Take Old D-Mark Coins, Deutsche Welle, 2 June 2005
  16. ^ Call of duty for Germany's mark, BBC News
  17. ^ Collobrières Journal - A French Village Revives the Franc, NYTimes.com
  18. ^ a b c Bank of Slovenia
  19. ^ Bank of Slovenia
  20. ^ "Cyprus files formal application to join the eurozone". Financial Mirror. 13/02/2007. http://www.financialmirror.com/more_news.php?id=6095&type=st. Retrieved 2007-02-13.  
  21. ^ http://eur-lex.europa.eu/LexUriServ/site/en/oj/2007/c_248/c_24820071023en00080009.pdf
  22. ^ "The Euro — National Euro Design — Cyprus". 2008-05-05. http://www.ibiblio.org/theeuro/files/files.nat/cyprus.s01.htm. Retrieved 2008-05-05.  
  23. ^ "euro our money". http://euro.gov.mt/. Retrieved 2008-05-03.  
  24. ^ http://www.holiday-malta.com/resort/malta/money/money_and_banks.htm List of euro centres
  25. ^ a b Slovakia transitions from koruna to euro, World Coin News, March 2009, p. 18  

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