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Euro
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Euro

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The euro (; ISO 4217 code EUR) is the currency of 12 of the 25 nations that form the European Union (and some outside it). It is the result of the most significant monetary reform in Europe since the Roman Empire. Though the introduction of the euro can be seen simply as a mechanism for perfecting the Single European Market, facilitating free trade between the members of the Eurozone, the euro is also a key part of the European project of political integration.

The euro is administered by the European System of Central Banks (ESCB), composed of the European Central Bank (ECB) and the Eurozone central banks operating in member states. The ECB (headquartered in Frankfurt am Main, Germany) has sole authority to set monetary policy; the other members of the ESCB participate in the printing, minting and distribution of notes and coins, and the operation of the Eurozone payment system.

Table of contents
1 Characteristics
2 Plural formation and grammar
3 Transition
4 Participation in the Economic and Monetary Union
5 Effects of a single currency
6 Euro exchange rate
7 The euro sign
8 Economists who helped realise the euro
9 See also
10 External links

Characteristics

Main articles - Euro coins, Euro banknotes

The euro is divided into 100 cents.

All euro coins have a common reverse showing the worth and a national obverse showing an image particular to the country it was issued in; the monarchies tend to have a picture of their reigning king or queen, other countries usually have their national symbols. All the different coins can be used in all the participating member states: e.g. a euro coin bearing an image of the Spanish king is legal tender not only in Spain, but also in Finland (and all the other nations where the euro is in use). There are two-euro, one-euro, fifty-cent, twenty-cent, ten-cent, five-cent, two-cent and one-cent coins, though the latter two are not generally used in Finland (though legal tender).

Euro banknotes have a common design for each denomination on both sides. Notes are issued in the following amounts: €500, €200, €100, €50, €20, €10, and €5. Some higher denominations are not issued in some countries, though again, are legal tender.

Plural formation and grammar

The neutrality of this article is disputed.

Official practice followed in English language EU legislation is to use the words euro and cent as both singular and plural. [1] This practice arose out of legislation intended to ensure that the banknotes were uncluttered with a string of plurals (as the Soviet ruble notes were). Because the s-less plurals had become "enshrined" in EU legislation, the Commission decided to retain those plurals in legislation, but the European Commission Translation Service strongly recommends that in all material generated by the Commission intended for the general public, "the natural plurals" of each language be used.

However, the Irish Ministry for Finance decided to use the word euro as both the singular and plural forms of the currency, and because Irish broadcasters took their cue from the Ministry for Finance, the "legislative plurals" tend to also be used on the news and in much Irish advertising. This has the effect of reinforcing the s-less plurals, though many advertisers (particularly those in the UK) prefer the natural plurals in -s.

Many people in Ireland strongly prefer the natural plurals; at the time the s-less plurals were introduced, some complained that the EU had no business changing English grammar. Other people have become accustomed to what they hear on daily television and radio. While usage in Ireland is disputed, common usage in the UK prefers euros and cents as the plural forms. Broadcasts of currency exchange rates outside the European Union tend to use the -s plural; with NPR in the United States and the CBC in Canada being two examples.

The French, Spanish, and Portuguese all use their natural plurals euros. Although cent/cents is official in France and Belgium, most French and French-speaking Belgian people still use the older term centime/centimes to avoid confusion with the word cent meaning hundred, and in the habit of the subdivision of a French Franc divided into 100 centimes. Likewise, in Spain céntimo is still frequently heard (although the Spanish peseta had not been divided into fractionary parts since the 1980s). In Portugal, the words cêntimo/cêntimos are widely used instead of cent/cents.

Further spelling and grammatical variation can be found in other languages of the member states: for example the Finnish term for the cent is sentti (partitive singular senttiä). The plurals euros and cents are also officially used in Spanish and French. In Dutch, the plural of euro is euro’s and that of cent is centen.

In the Greek language and alphabet the immutable word ευρώ (pronounced evró) is used as the currency's name. It was decided to use the Omega rather than the Omicron for the last letter of the word, partly because a noun ending with Omicron would encourage mutability, contrasted to Omega. For the cent the terms used are λεπτό, pl. λεπτά (leptó, pl. leptá), which are a reference to the old subdivision of the modern Greek drachma, which the euro replaced.

In the Irish language, the English words euro and cent are used, as a foreign borrowingss without change in spelling or pronunciation, and immune to the natural rules of Irish mutation after numbers. The masculine noun eoró (pl eorónna) has been coined from the word Eoraip ('Europe'), and ceint pl. ceinteanna has been in the lexicon since at least 1959. The words eoró and ceint are attested in printed literature, though the foreign borrowings tend to be more frequent, again due to a lack of coordinated language planning.

Transition

The euro was established by the provisions in the 1992 Maastricht Treaty on European Union relating to establishing 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 GDP, a debt ratio of less than 60% of GDP, combined with low inflation and interest rates close to the EU average.

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 definitive values in euro of these subdivisions (which represent the exchange rate at which the currency entered the euro) are as follows:

The above rates were determined by the ECB based on market rates on December 31, 1998, so that 1 ECU (European Currency Unit) would equal 1 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 December 31, 1998.

Greece failed to meet the criteria for joining initially, so it did not join the common currency on January 1, 1999. It was admitted two years later, on January 1, 2001, at an exchange rate of:

The procedure used to fix the irrevocable conversion rate between the 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, the conversion rate for the Greek drachma was fixed several months beforehand, in Council Regulation 1478/2000 (EC), of June 19, 2000.

The currency was introduced in non-physical form (travellers' cheques, electronic transfers, banking, etc.) at midnight on January 1, 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 subdivisions of the euro; the euro thus became the successor to the older 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 January 1, 2002 and the changeover period ended on February 28, 2002.

The changeover period during which the former currencies' notes and coins were exchanged for those of the euro generally lasted two months. 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, where the mark officially ceased to be legal tender on December 31, 2001, though the exchange period lasted two months. The final date was February 28, 2002, by which all national currencies ceased to be legal tender in their respective member states. (Note that some of these dates were earlier than was originally planned.) However, even after that they will continue to be accepted by national central banks for several years, and in some states for decades hence. The earliest coins to become non-convertible were the Portuguese escudos, which ceased to have monetary value after 31 December 2002, although banknotes do remain exchangeable until 2022.

Although some countries are not printing the bigger banknotes such as 500 euro and 200 euro, all banknotes are legal tender throughout the Eurozone. Finland decided not to mint or circulate 1 cent and 2 cent coins, except in small numbers for collectors. All cash transactions in Finland ending in 1 or 2 cents are rounded down and 3 or 4 cents are rounded up.

Participation in the Economic and Monetary Union

Main article: Eurozone

At present the member states officially using the euro are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. These countries are frequently referred to as the "Eurozone" or more rarely as "Euroland".

San Marino, Monaco and Vatican City have formal agreements with the EU to use the euro – they also participate by supplying their own euro coins. Andorra previously used French and Spanish currencies – it now uses the euro, but does not have its own euro coins. Montenegro and Kosovo previously used the German mark, and have de-facto switched to use of the euro. Overseas territories of some Eurozone countries also use the euro; French Guiana is one example.

The ten newest European Union members should eventually use the euro (although not until 2008 at least), as EMU membership was part of their accession agreements. Estonia, Lithuania and Slovenia have already joined Denmark in the European Exchange Rate Mechanism, ERM II. The United Kingdom and Sweden have no plans at present to move towards participating with the euro - however Sweden (unlike the UK and Denmark) does not have a formal opt-out from the monetary union and therefore must (in theory at least) adopt the euro at some point.

Effects of a single currency

Having a single currency is expected to increase the economic interdependency of and the ease of trade between the EU members that have adopted the euro. This, in theory, should be beneficial for citizens of the euro area, as increases in trade are historically one of the main driving forces of economic growth. Moreover, this would fit with the long-term purpose of a unified market within the European Union.

A major benefit is the removal of bank currency transaction charges that previously was a significant cost to both individuals and businesses when changing from one currency to another. Conversely, banks will suffer a significant reduction in profits with the loss of this income.

A second effect of the common European currency is that differences in prices – in particular in price levels – will decrease. Differences in prices can trigger arbitrage, e.g. trade between countries, which will equalise prices across the euro area. Often this will also result in increased competition between companies, which should help to contain inflation and which therefore will be beneficial to consumers.

Some economists are concerned about the possible dangers of adopting a single currency for a large and diverse area. Because the Eurozone has a single monetary policy (and so a single interest rate), set by the ECB, it cannot be fine-tuned for the economic situation in each individual country. Public investment and fiscal policy in each country is thus the only way in which economic changes can be introduced specific to each region or nation. Eurozone members are experiencing large variations in inflation and unemployment, though not yet great enough to cause significant economic damage.

Others point out that the Eurozone is similar in size and population to the United States, which has a single currency and a single monetary policy set by the Federal Reserve. However, the individual states that make up the USA have less regional autonomy and a more homogeneous economy than the nations of the EU. Of particular concern is the notion that the economies of the EU may not all be 'in sync' – each may be at a different stage in the boom and bust cycle, or just be experiencing different inflationary pressures. Labour mobility is also higher in the United States than across the Eurozone.

It can also be argued that the single currency works for the USA because the dollar is a hegemonic currency. Before the euro, 80% of the world's currency reserves were held in US dollars. This gives the US economy a huge subsidy in that reserve dollars are invested in US institutions or foreign institutions under US control. This subsidy helps cushion the effects of a possible strong dollar hurting certain regions of the USA.

If the euro were to become either a hegemonic currency replacing the dollar or a co-hegemonic currency equal in reserve status to the dollar, some of the subsidy the USA gains would be transfered to the EU and help balance out some of the problems of the present heterogeneous economic structure still in place.

It has been said that the euro would add great liquidity to the financial markets in Europe. Governments and companies can now borrow money in euro instead of their local currency, and this allegedly would allow access to many more sources of funds. Other economists consider that the potential strength of Euroland would be in the coherent efforts of a virtual greater super-economy, in which it is now potentially easier to create stronger financial associations, rather than in the mere sum of single liquidities.

A final and possibly decisive effect is on the pricing of oil. Euroland consumes more imported oil than the United States. This would mean that more euros than US dollars would flow into the OPEC nations, except that oil is priced by those nations in US dollars only. There have been frequent discussions at OPEC about pricing oil in euros, which would have various effects, among them, requiring nations to hold stores of euros to buy oil, rather than the US dollars that they hold now. This would be a transfer of a 'float' that presently subsidises the United States to subsidise the European Union instead. Venezuela under Hugo Chávez has been a vocal proponent of this scheme, despite selling most of its own oil to the United States.

The huge deficit structure of the US economy relies heavily on the dollar's hegemonic reserve status as a means of securing US debts and deficits. Without this status, the dollar and the US economy would experience what many Latin American countries experienced during the 1980s. As long as the US dollar was not threatened, the US economy was in no danger of collapse. The individual European currencies offered no threat to the dollar's hegemonic position. In the opinion of some economists, however, the euro does pose a threat and the US economy is in danger of collapse if its deficits continue to rise.

Euro exchange rate

After the introduction of the euro, its exchange rate against other currencies, especially the US dollar, declined heavily. At its introduction in 1999, the euro was worth USD $1.18; by late 2000 it had fallen to below $0.85. It then began what at the time was thought to be a recovery; by the beginning of 2001 it had risen to $0.95. It declined again, finally reaching a low of below $0.84 in July 2001. The currency then began to recover against the U.S. dollar. In the wake of U.S. corporate scandals, the two currencies reached parity on July 15, 2002, and by the end of 2002 the euro had reached $1.04 as it climbed further. There is speculation that this strength relative to the dollar might encourage the use of the euro as an alternative reserve currency. On May 23, 2003, the euro surpassed its initial trading value for the first time as it again hit $1.18, and in February 2004 the euro even climbed above $1.29, the highest exchange rate since its introduction. Part of the euro's strength is thought to be due to more attractive interest rates in Europe than in the United States. The expensive euro has been feared to be hurting European exports, yet no evidence of this has been verified.

The euro's climb from its lows began shortly after it was introduced as a cash currency. In the time between 1999 and 2002, euro-skeptics tried to imply the weak euro was a sign that the euro experiment was doomed to fail. But it can also be said the its weakness in this period was low confidence in a currency that did not exist in "real" form. Once the euro became "real" in the sense of existing in the form of cash, the confidence in the euro rose and the reality that it was here to stay helped increase its value.

The euro sign

The international three-letter code (according to ISO standard ISO 4217) for the euro is EUR. A special euro currency sign () was also designed. After a public survey had narrowed the original ten proposals down to just two, it was then up to the European Commission to choose the final design. The eventual winner had been designed by Arthur Eisenmenger and was inspired by the Greek letter epsilon (ε), as well as being a stylised version of the letter "E".

The euro is represented in the Unicode character set with the character name EURO SIGN and the code position U+20AC (decimal 8364) as well as in updated versions of the traditional Latin character sets. Western nations should switch from ISO 8859-1 (Latin 1) to ISO 8859-15 (Latin 9) or Unicode in order to represent this character. ISO 8859-16 represents this character also. In HTML "€" can also be used.

The European Commission originally specified the euro sign to have exact proportions, not varying from font to font. By this specification, the euro would have effectively been a logo, unlike designable characters such as the letters or other currency signs like the dollar and pound signs. Keeping it to exact measurements would have made it rather broad in comparison to other symbols and digits in most fontss and would sometimes have resulted in layout problems. For these reasons, most type designers have ignored the commission and designed their own variants for each font instead, often based upon the capital letter C in the respective font. The illustration at the top of this article is of the official, invariant euro sign.

Economists who helped realise the euro

Economist Robert Mundell is sometimes referred to as the father of the euro.

See also

External links

Banks (eurosystem)

Links to the national central banks:

Banks (European System of Central Banks (ESCB) - non eurozone)

Articles


 
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