Introduction of the euro
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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in the Eurozone became fixed, and early 2002, when euro notes and coins were introduced and the legacy currencies withdrawn. It continues in some nations as remaining amounts of legacy currencies are exchanged for euro.
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[edit] 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.
[edit] Preparation for the transition, 1999-2001
The procedure used to fix the irrevocable conversion rate 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.
The currency was introduced in non-physical form (traveler'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.[1] In 7 nations, the new coins, struck in the runup 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 euros). 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 utilized. 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.
[edit] 1 January 2002 and the change of currency
As midnight struck to usher in 2002, a celebration took place outside European Central Bank offices in Frankfurt. A huge mockup of a euro coin was displayed. The new era had begun.
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.[2] The first official purchase using euro coins and notes took place there, for one kilo of lychees.[3] The coming of midnight in Frankfurt at the ECB offices, though, symbolized 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 colors, while in the northern German town of Gifhorn a somber, symbolic funeral for the Mark took place.
Except in 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--especially with two labour strike threats in December 2001. In France, these fears were accentuated by a threatened postal workers' strike.[4]. 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.[5]
In practice, the rollout 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.[6] 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.[7]
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.[8]
[edit] Aftermath
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 by national central banks for varying periods--and indefinitely in Austria, Germany, Ireland, and Spain. 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. Coins from those four countries, Italy, and Finland remain exchangeable. All banknotes current on 1 January 2002 will remain valid until at least 2012.[9]
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.[10] Callers were allowed to use DM coins, at least initially, with the Mark pegged to equal one euro, almost twice the usual rate.[11]
