international youth exchange euro

European integration has by now become inseparable from the common European currency, the euro. It was not always the case. It took more than four decades from the creation of the European Economic Community (1957) to evolve and reach the stage of customs union, than the common market, and finally to the introduction of the common currency. The concept of a common currency was first introduced during 1970, fuelled by spectacular economic developments and prosperity from the very beginning. The Member State of the time commissioned Pierre Werner, the Prime Minister of Luxembourg to work out the details. Werner came up with an ambitious plan; he felt that the common currency, which at this time was not called the euro, could be introduced by 1980. However, all plans the economists have made turned out to be a waste of time, for the oil crisis dictated otherwise.

It was 1989 when the idea of a common currency resurfaced, this time initiated by Jacques Delors of France, the head of the Council, that is considered as the government of the Community. Actions followed, and the concept became reality.

Hungary could take pride in the fact that one of the forefathers of the euro was a born Hungarian. Namely, the head of the European Monetary Institute of Frankfurt (the predecessor of the European Central Bank) was Sándor Lámfalussy between 1994 and 1997. Professor Lámfalussy has made significant contributions in the preparations for the introduction of the euro.

Coins and banknotes

On 1 January 2002 euro banknotes and coins had been introduced in twelve Member States. However, the adopting the euro means far more than just the exchange of one currency to another. It brought about major changes in the everyday life of private individuals and companies not only in this twelve nations, but throughout the world. So let us embark upon a journey to learn more about the history of the euro, about the careful preparations and design work, of the various denominations and the symbols they bear, and everything else that makes the common currency special for us Europeans.

Designing and the history if Euro banknotes and coins

In legal terms the ECB and the national central banks of the euro zone are issuing the euro banknotes as of 1 January 2002. In light of the fact that the ECB does not conduct any cash transactions, in practical terms the national central banks of the euro zone are the ones who in fact issue these banknotes. There were twelve such national central bank before the end of 2006, with the addition of Slovenia on 1 January 2007, for they too have introduced the euro on that day.

Euro banknotes are accepted in all countries of the euro zone, and in many other countries beyond.

The road to the introduction of the euro banknotes and coins on 1 January 2002 took ten years of strenuous and thorough preparations.

Euro banknotes

Work on the first series of euro banknotes had been initiated in 1992 under the third stage of the EMU by the committee comprising the presidents of the national central banks of the member states of the European Economic Community, then in 1994 the European Monetary Institute (EMI), which was the forerunner of the ECB, took over, and it was finished up by the ECB. To begin with they studied the procedures commonly used in the Community in the fields of production, issue, circulation, processing and destruction of banknotes.

At the meeting of the European Council in Madrid of December 1995, the decision was taken concerning the name of the common currency (euro) and the denominations of the euro banknotes and coins to be issued.

The EMI launched a competition on 12 February 1996 for the design of euro banknotes in the “ages and styles of Europe” theme and the modern/abstract theme. The process lasted seven months. When it ended in September, the NCBs first checked the plans for printing properties and for compliance with the prescribed requirements, than sent the approved works to a notary public in Frankfurt am Main who attributed a three-digit code to each series to render them anonymous. The designs were then presented to the EMI without the names of the competitors.

On 26 and 27 September 1996 a jury of 14 independent experts in marketing, advertising, design and art history gathered at the EMI, chaired by its general secretary. Members of the jury came from all Member State of the EU, except Denmark (the Danmarks Nationalbank did not send an expert due to Denmark’s decision not to join the euro zone), appraised the designs based on the following criteria: originality, appearance, functionality, public opinion, equal treatment among the sexes and the absence of any bias based on nationality.

On 3 December 1996 the Council of EMI choose the winning series, that were designed by Robert Kalina, a banknote designer at the Oesterreichische Nationalbank. The banknotes based on the “ages and styles of Europe” theme feature windows, gateways and bridges each representing a period in European history, so as to depict the common cultural heritage of Europe, and to signal the dawn of a new beginning.

On the front of the banknotes, the windows and gateways depict European openness an commitment to co-operation. To illustrate the dynamic nature and harmony of today’s Europe the banknotes contain the 12-star symbol of European Union. The bridges on the reverse of the banknotes – depicting early styles, today’s complex suspension bridges and everything in between – intended to symbolise communication between the European nations, and also between Europe and the rest of the world.

The banknotes contain, among other things:

the name of the currency written in the Latin (EURO) and Greek alphabets (EYPΩ);
the 12-star symbol of the European Union;
the abbreviated name of the issuer in 5 languages – BCE, ECB, EZB, EKT and EKP;
the signature of the President of the ECB.

Following extensive discussions and scientific research colours were selected with ease of recognition of the various denominations. Contrasting colours have been chosen for the sequence of denominations, starting with cold and turning into warm colours. There has also been successful co-operation with the European Blind Union, with a view to accommodate the special needs for the blind and partially sighted. As a result, each of the banknotes is a slightly different size, and the numbers are printed in relief, through the use of a special printing technique, so as to better distinguish them by the touch.

In 1998 the Governing Council of the ECB approved the final designs and the technical specifications for the new banknotes. In July 1999, after a series of preparatory technical steps, the production of euro banknotes began. Each national central bank (NCB) was responsible for deciding where to print the initial supply of banknotes required in its respective country. A total of fifteen printing works and nine paper mills took part in the production of banknotes worth fifteen billion euro that was required for the transition. Now that euro banknotes are already in circulation, production requirements are determined annually, and the twelve participating national central banks obtain the various denominations collectively.

Euro coins

The Mint Directors Working Group set to work in 1991 to determine the production scheme for the coins of the common currency that was called ECU at that time.

The Member States of that time have adopted a decision at the informal council meeting held in Verona (ECOFIN), notably that euro coins will have a national and a common side.

One side of the euro coins – regardless of where they are issued – contains a common theme, while the other is different according to the country of issue. The national sides for all twelve countries of the euro zone is surrounded by the 12-star symbol of the European Union. The European Commission launched a competition for the design of the common sides of the coins, and awarded the contract to Mr. Luc Luycx of the Royal Belgian Mint. The jury’s decision was approved by the Council of Europe. The 1, 2 and 5 cent coins show the globe, and Europe. The 10, 20 and 50 cent coins show the Member States separately, while 1 and 2 euro coins shown the EU Member States together. Similar to banknotes, euro coins too are accepted in all countries of the euro zone, regardless of where they were issued. The coins feature some new techniques to ensure that the euro coins are user-friendly for the blind and visually impaired. For example, different coin shapes are used to make it easier to differentiate the values. The initial supply of coins was worth approximately 52 billion euro. If you have a €2 coin with an unusual national side, it may be a commemorative coin.

Briefly about the euro

The euro is the common currency of the EU Member States belonging to the euro area. Presently the euro zone has thirteen members: Germany, Belgium, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Portugal, Finland and Slovenia. In the other Member State of the European Union, which are yet to join the euro zone, the legal tender remains the national currency of the country in question. Euro banknotes and coins were first put into circulation on the first of January, 2002. The former legal tenders are exchanged by the national banks of the respective country within a specific time limit.

History/Chronology

The road to the euro

1962. First recommendation of the European Commission for the Economic and Monetary Union (Marjolin-memorandum).

May 1964 a Committee is formed by the presidents of the national banks of the European Economic Community (EEC), tasked to institutionalise co-operation between national banks of the EEC.

1971 The Werner Report presents a proposal for setting up the Economic and Monetary Union by 1980 within the Community.

April 1972 Under the “currency snake” a system is established intended to progressively reduce the fluctuation margin designated for the currencies of the Member States of the European Economic Community.

April 1973 The European Monetary Co-operation Fund is established to handle the currency snake.

March 1979 The European Monetary System (EMS) is established.

February 1986 Signature of the Single European Act.

June 1988 The European Council set up an expert committee, with Jacques Delors presiding (Delors Committee) tasked to draw up recommendations for setting up the EMU.

May 1989 The Delors Report is presented to the European Council.

June 1989 At the meeting of the European Council a decision is made for the introduction of the EMU in three stages

June 1990 The first stage of the introduction of the EMU begins.

December 1990 The inter-governmental conference called for the preparation of second and third stages for the introduction of the EMU gets under way.

February 1992 Signature of the Treaty on European Union (aka Maastricht Treaty).

October 1993 Frankfurt am Main of Germany is chosen for the headquarters of EMI and the ECB, a proposition is made for the president of the EMI.

November 1993 The Treaty on European Union enters into force.

December 1993 Sándor Lámfalussy is named the first president of EMI effective as of 1 January 1994.

January 1994 The second stage of the EMU is set under way, the EMI is officially established.

December 1995 At the meeting of the European Council in Madrid, the decision was taken concerning the name of the common currency, and a timetable is drawn up for the introduction of the euro and for the cash changeover.

December 1996 EMI introduces the samples of banknotes to the European Council.

June 1997 The European Council approved the Stability and Growth Pact.

May 1998 Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland meets the criteria for the common currency, the euro. Members of the ECB Executive Board are appointed.

June 1998 The ECB and the ESCB is officially established.

October 1998 The ECB announces the strategy and operating framework for the single monetary policy scheduled to enter into force in January of 1999.

January 1999 The third stage of the EMU is set under way; the euro becomes the common currency of the euro zone; the exchange rates for the national currencies of the participating are finalised; a single monetary policy takes over in the euro zone.

January 2001 Greece joins the euro zone as the twelfth nation.

January 2002 Cash changeover: euro banknotes and coins are placed into circulation, euro remains the sole legal tender in the euro zone after the end February 2002.

May 2004 The national banks of ten new Member States are added to the European System of Central Banks.

January 2007 Slovenia joins the euro zone as the thirteenth nation.

Source: European Central Bank – History, role and functions. Frankfurt am Main , 2004, European Central Bank, page 16-17.

Treaty on European Union

In June 1988, the European Council confirmed the objective of the progressive achievement of economic and monetary union, and set up a committee headed by Jacques Delors, the president of the European Commission, tasked to draw up recommendations for the “key stages” of the implementation of the EMU. The committee was made up of the following members: presidents of the NCBs of the Community, Sándor Lámfalussy, the director of Bank for International Settlements (BIS), Niels Thygesen, Professor of international economics at the University of Copenhagen, Miguel Boyer, president of the Banco Exterior de Espańa and Frans Andriessen, members of the European Commission. On 17 April 1989 they published the so called “Delors Report” containing 17 recommendations, according to which the Economic and Monetary Union is the established in three “different, yet closely related stages”.

According to the recommendation the first stage should focus on the completion of the internal markets, reduce the differences between the economic policies of the Member States, remove all obstacles of financial integration, and strengthen central bank co-operation and monetary policy co-ordination.
The second stage is a transitory phase on the way to the final stage, intended to set up the fundamental bodies and the organisational structure of the EMU, and to strengthen economic convergence.
The third stage shall adopt the conversion rates shall be irrevocably fixed, and shall define the full economic and monetary responsibilities of the different Community institutions and bodies.

Stage One was implemented within the existing institutional framework of the community, however, for the realisation of Stages Two and Three, it was necessary to revise the Treaty establishing the European Economic Community in order to establish the required institutional structure. To this end, an Intergovernmental Conference on EMU was convened, which was held as of 1990 in parallel with the Intergovernmental Conference on political union. At the request of the European Council, the European Commission, the Monetary Commission and the governors of the NCBs all took part in the preparation of the Intergovernmental Conference on EMU, each within their respective sphere of competence.

The negotiations resulted in the Treaty on European Union (EU Treaty, or better known as “Maastricht Treaty”) signed in Maastricht on 7 February 1992. The EU Treaty established the European Union and amended the charter documents of the European Communities. Among others, these amendments contained the introduction of a new chapter concerned with economic and monetary policies. The new chapter lays down the foundation for EMU and defines the procedures and timetable for its implementation.

Reflecting the increasing legal competence of the community, the EEC adopted the name European Community. The Protocol on the Statute of the European System of Central Banks (Statute of the ESCB) and of the European Central Bank and the Protocol on the Statute of the European Monetary Institute (Statute of the EMI) was annexed to the EC Treaty. Denmark and the United Kingdom was given special status, therefore they were not required to participate in Stage Three EMU. Owing to delays in the ratification process in Denmark and in Germany, the EU Treaty did not come into force until 1 November 1993, instead of 1 January 1993 as it was originally planned.

Economic and Monetary Union

Stage One of EMU

On the basis of the Delors Report, the European Council decided in June 1989 that the first stage of the realisation of economic and monetary union should begin on 1 July 1990. On this date, in principle, all restrictions on the movement of capital between Member States were abolished. At the same time the Committee of Governors of the central banks of the Member States of the European Economic Community was given additional responsibilities. These were laid down in a Council Decision dated 12 March 1990. Their new tasks included holding consultations on, and promoting the co-ordination of, the monetary policies of the Member States, with the aim of achieving price stability.

Stage Two of EMU

The establishment of the European Monetary Institute on 1 January 1994 marked the start of the second stage of EMU. The EMI was established as a transitory body to carry out the preparatory work for the third stage, while the responsibilities in the European Union for monetary and exchange rate policies remained the preserve of the national authorities. The Committee of Governors ceased to exist, however, it was practically reorganised in the Council (governing body) of the EMI.

The two main tasks of the EMI:

to strengthen central bank co-operation and monetary policy co-ordination;
to make the preparations required for the establishment of the (ESCB), for the conduct of the single monetary policy and for the creation of a single currency in the third stage.

Stage Three of EMU

On 1 January 1999 the third and final stage of EMU commenced with the irrevocable fixing of the exchange rates of the currencies of the 11 Member States initially participating in Monetary Union and with the conduct of a single monetary policy under the responsibility of the ECB. The European Council has adopted a secondary community legislative measure to lay down the legal framework for the euro to replace the national currencies with immediate effect, whereupon they will be defined as non-decimal sub-divisions of the euro between 1 January 1999 and 31 December 2002. During the first three years the participating Member States were free to use euro and its national sub-division for the settlement of debts and receivables, and also for the settlement of payment using non-cash instruments (under the principle of “no compulsion, no prohibition”). However, Member States were given the right to compel the bodies under their jurisdiction to redenominate their negotiable and outstanding debts in the euro unit, and to use the euro for the transactions conducted on regulated markets and also in the payment and settlement systems. Member States exercised this option widely already before the initiation of the Third Stage of EMU. Furthermore, the EMI announced that the Eurosystem will conduct all monetary policy operations in the euro exclusively, and that the euro will be used as the sole unit of settlement in the TARGET Project. In this light, the financial sector made some serious preparations to operate on integrated financial markets following the initiation of the third stage. The rapid and full transition of the financial markets was in the financial sector’s interest, for none of the economic operators wanted to fall behind the competitors. With the help of the EMI, the financial market alliances agreed to adopt proceedings for the standardisation of market practices, and created the key interest rate indices (EURIBOR, EONIA etc.).

Thanks to these preparations, the financial markets were able to make the transition to the euro immediately following the initiation of Stage Three of EMU. The euro took over as the sole currency to be used in all transactions, and most debt securities and outstanding debts were converted to euro. All cross-border payment system handling large volumes switched to the euro. The switchover of financial markets was instantaneous and smooth. While companies gradually made the switch to the euro during the period of transition, the new currency was used sparingly among the general public due the lack of sufficient supplies, that was changed on January 2002, when the euro banknotes and coins were official introduced. On 1 January 2001 Greece joined the euro zone, bringing the number of participating countries to twelve, and the central bank of Greece became a member of the Eurosystem. According to the decision of the European Council, adopted on 19 June 2000 on the basis of Article 122 (2) of the EC Treaty, Greece satisfied the criteria for the introduction of the euro. The exchange rate between the euro and the drachma was announced in advance in a council regulation adopted the same day. The procedure for the introduction of the euro was completed with the cash changeover on 1 January 2002: euro banknotes and coins were placed into circulation, and at the same time the national currencies ceased to function as non-decimal sub-divisions of the euro. The former national currencies no longer had the status of legal tender as of the end of February 2002, and the euro banknotes and coins became the sole means of payment in the countries of the euro zone.