Euro

Euro, monetary unit of the European Union (EU). On January 1, 2002, euro-denominated coins and bills went into circulation in 12 of the 15 states that were then members of the EU—Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and Spain. The euro replaced the currencies of these nations. Five non-EU countries also have adopted the euro as their national currency—Andorra, Monaco, Montenegro, San Marino, and Vatican City. In January 2007 Slovenia became the 13th EU member to adopt the euro, followed by Cyprus and Malta in January 2008.

The adoption of the euro was the final step in the EU’s plan for Economic and Monetary Union (EMU). EMU was designed to establish a single currency and a single monetary authority for EU member states, and was an integral part of the 1991 Maastricht Treaty that founded the EU. In order to make the euro a stable currency, the EU set stringent economic criteria that member countries had to meet before they could adopt the euro. These criteria dealt with things such as levels of inflation, amount of budget deficit and government debt, and stability of the existing national currency.

On January 1, 1999, the euro went into use for accounting purposes and electronic fund transfers in 11 participating EU member states. Greece, the 12th participating member, did not officially adopt the euro until January 1, 2001. From 1999 to 2002, the euro coexisted with the currencies of the participating states. Starting in 2002 euro notes and coins became legal tender and entered circulation in the 12 states. The member states’ old currencies were to remain legal tender until the end of February 2002, when all monetary transactions were to be conducted in euros. In 2005 one U.S. dollar was worth an average of 0.80 euros.

The bank of issue for the euro is the European Central Bank (ECB), which was established in June 1998 and began operation on January 1, 1999. The ECB, located in Frankfurt, Germany, has total control over all EU monetary policies, including setting interest rates and regulating the money supply.

The euro is divided into 100 cents. Euro notes are issued in denominations of 5, 10, 20, 50, 100, 200, and 500 euros. Coins are issued in denominations of 1, 2, 5, 10, 20, and 50 cents, and 1 and 2 euros. Although bills are identical in all countries, each country issues its own coins, which have a common design on one side and a national design or emblem from the country of issue on the other.