The world's most ambitious currency union in modern times has reached a milestone some critics predicted would never happen.
by Paul Kieffer
As I drove from Switzerland toward Bavaria on the afternoon of Dec. 31, 1998, I listened to a European-wide radio broadcast of historic proportions. The finance ministers of 11 European Union countries were meeting to confirm the official conversion rates of their currencies to a new shared currency, the euro.
The final day's exchange rate was announced for the 11 currencies against the "European Currency Unit," an artificial accounting value used internally for the various EU national currencies. The exchange rate for each of the 11 currencies on Dec. 31, 1998, became the official exchange rate for the euro. Germans learned that 1.95583 German marks would equal one euro, beginning the very next day at the start of 1999.
For the next three years the euro existed as an accounting value and in nonphysical form (electronic transfers, banking, etc.). The 11 national currencies of the eurozone countries had fixed rates relative to their value against the euro, effectively rendering them mere subdivisions of the euro. Prices were now quoted in both the respective national currencies and the euro.
The next step was the introduction of bank notes and coins for the new currency on Jan. 1, 2002. Preparation for the transition took months of planning and a major logistical effort as coins and bank notes were distributed to banks throughout the new eurozone. Although a two-month phaseout period for the old national currencies was planned, within just days nearly all cash purchases were already being transacted in euros.
The 1992 Maastricht Treaty on European Union provided the framework for introducing the euro. The criteria for participation were strict and reflected Europe's concern over the potential for inflation. To become a member of the eurozone, EU countries may not have an annual budget deficit higher than 3 percent of their gross domestic product, and national interest rates must be close to those in the eurozone.
