The Euro is the single currency shared by 17 of the 27 member states of the European Union. Each of the new EU member states is expected to adopt the euro once it meets the necessary criteria. In the long run, virtually all EU countries should join the euro area.
The euro gives consumers in Europe considerable advantage. Travellers are spared the cost and inconvenience of changing currencies. Shoppers can directly compare prices in different countries. Prices are stable thanks to the European Central Bank, whose job is to maintain this stability. Moreover the euro has become a major reserve currency, alongside the US dollar. During the 2008financial crises, having a common currency protected euro area countries from competitive devaluation and from attack by speculators.
At the European Council in Madrid in June 1989, EU leaders adopted a three stage plan for economic and monetary union (EMU):
Counties having the Euro currency
Denmark, Sweden and the UK decided, for political and technical reasons, not to adopt the euro when it was launched. Slovenia joined the euro area in 2007, followed by Cyprus and Malta in 2008 and Slovakia in 2009 and Estonia in 2011. More countries are let to join once they have meet the 5 convergence criteria:
Price stability, Interest rates, Deficits, Public debt & Exchange rate stability
The Stability and Growth Pact
In June 1997, the Amsterdam European Council adopted a Stability and Growth Pact. This was a permanent commitment to budgetary stability, and made it possible for penalties to be imposed on any country in the euro area whose budget deficit exceeds 3% of GDP.
Macroeconomic convergence since 2007: the effects of the crises
The 2008 financial crisis considerably increased public debt in most EU countries. Having a common currency however protected euro-area countries from competitive devaluation and from attack by speculators. In 2010 the EU member states decided to set up a financial stabilisation mechanism for the Euro area, providing €750B in funds from the member states.
At the same time, the EU member states and institutions brought provisions designed to strengthen the EU’s economic governance: prior discussion of national budget plans, monitoring national economies and tightening the rules on competitiveness and reviewing the sanctions to be applied if countries breach the financial rules. The EU is having to take tougher action to ensure the member states manage their budgets responsibly and support one another financially.
This is a way to ensure the euro remains credible as a single currency and that the member states can, together, face the economic challenges of globalisation.