In the beginning of the year, the ministers of finance and the economy of the countries forming the Eurogroup (eurozone) issued a statement on the occasion of the 20th anniversary since euro coins and banknotes entered into circulation.
Truth be said, the creation of the euro was a leap of faith for a number of countries, even if over the years before its introduction, there were various arrangements meant to synchronise the monetary policy of member states and to achieve more currency stability.
The concept of an economic and monetary union was established as one of the objectives of European integration in 1969. The European Monetary System was created in 1978, based on the concept of fixed but adjustable exchange rates. This led to the exchange rate mechanism and the creation of the European Currency Unit. The adoption of the single market in 1985 made it clear that the benefits of this initiative could not be fully achieved without a common currency.
A quick look at the euro’s history would show that the euro was introduced to world financial markets as an accounting currency in January 1999, replacing the former European Currency Unit. It had been established by the Maastricht Treaty of 1992, which had introduced a number of reforms in the EU. Initially, 11 members had joined and today it has 19 members, including Malta. It is the second-largest reserve currency, as well as the second-most-traded currency in the world after the dollar.
The full potential of the euro, as a single currency of 19 states, has not been fully realised, especially where it comes to investment
Some countries were not too pleased with the introduction of the euro and saw it as a threat. For this reason, they prophesied that the euro would not last too long and that the eurozone would disintegrate. When the sovereign debt crisis hit in 2010, those calls that the euro was not sustainable became even more vociferous. They did prove themselves to be prophets of doom but the euro has survived and thrived.
The courage of the president of the European Central Bank, Mario Draghi, who said he would do whatever it takes to save the euro, sent a very clear message that the euro is here to stay, and it has stayed and it will stay.
Taking a long-term perspective, one piece of data says it all. When the euro was introduced, it was valued at US$1.17. These days, it has been valued at US$1.14. In this span of 20 years, there were times when the euro weakened and times when the euro strengthened, and I believe that today, few are those people who doubt whether the euro is sustainable.
Admittedly, the rules that were put in place to support the euro, such as a budget deficit of less than three per cent of the country’s GDP, a debt ratio of less than 60 per cent of GDP, low inflation and interest rates close to the EU average, may not have proved themselves to work well in specific circumstances. This is leading to calls for a review of these rules, calls which are being led by two of the three largest eurozone economies, France and Italy.
The euro will be facing other challenges in the future while the ECB seeks to maintain macroeconomic stability and governments seek to have a sustainable fiscal policy, the absence of which would undermine the euro. The full potential of the euro, as a single currency of 19 states, has not been fully realised, especially where it comes to investment. It also needs to seize the opportunities created by increased digitisation and by the need to undergo economic restructuring because of climate change.
There is still a great deal of work to be done and 20 years on, I believe that the Eurogroup will achieve the goals it has set for itself.
Ad multos annos euro.
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