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International Internet Magazine. Baltic States news & analytics Tuesday, 21.05.2019, 14:01

Euro celebrates 20 years in the EU and 5 years in Latvia

Eugene Eteris, European Studies Faculty, RSU, BC International Editor, Copenhagen, 09.01.2019.Print version
Euro celebrates 5 years in Latvia and 20 years in the EU. Europeans are feeling strength, convenience and stability of the common currency. Global community acknowledged euro as a reliable international currency: it is part of an SDR’s basket with the US$, the UK pound and the Japanese yen. But euro is only a part –though important –in a national growth; sound economic policies, which are in the hands of politicians, are key issues.

The establishment of a single market necessitated the creation of a single currency. The “euro-moment” followed decades of discussions on achieving Economic and Monetary Union, EMU: e.g. in 1988 the Delors Committee was set up (under the chairmanship of then Commission President Jacques Delors, it examined specific, gradual steps towards a single currency). Then the agreement among political leaders followed with the signing in 1992 the Maastricht Treaty, which brought the single currency to life. More on the Treaty in:

https://www.ecb.europa.eu/explainers/tell-me-more/html/25_years_maastricht.en.html


In 1994, the European Monetary Institute (EMI) started its preparatory work in Frankfurt for the European Central Bank (ECB) to assume its responsibility for monetary policy in the euro area; on 1 June 1998, the ECB became operational.

More on ECB in: https://www.ecb.europa.eu/home/html/index.en.html


On 1 January 1999, the euro was launched, becoming the official currency of initially 11 EU states and 19 presently. The euro is the second most important international currency; it is a safe store of value for international central banks and widely accepted for international payments.


During last years, the architecture of the EMU has been significantly reinforced, building on the visions set out in the Five Presidents' Report of June 2015 and the Reflection Papers on the Deepening of the Economic and Monetary Union and the Future of EU Finances in spring 2017. Besides, the Commission set out a roadmap for deepening the Economic and Monetary Union. On the EMU reforms see the following web-links:

- Learn more about the story and the benefits of the euro;

- Find out more about what the EU is doing to strengthen the euro;

- Factsheet: Commission presents ways to further strengthen the euro's global role;

 - Factsheets: updates on deepening the Economic and Monetary Union ahead of the euro summit of 14 December 2018. 

 

Public support for the euro has been consistently increasing: a majority of 74% of respondents across the euro area thought the euro was good for the EU; this is the same as the record high score set in 2017 and confirms that popular support for the euro is at its highest since surveys began in 2002. A majority of 64% of respondents across the euro area thought the euro was good for their own country; about 36% of Europeans identify the euro as one of the EU’s main symbol, the second highest behind “freedom”. References to: https://ec.europa.eu/info/news/eurobarometer-2018-nov-20_en

 

Euro’s two decades in the EU is a good point to make some assessments. In January 1999, eleven EU states launched a common currency, the euro, and introduced a shared monetary policy under the control of the EU’s authority, i.e. the European Central Bank. Presently, the euro is the currency of 340 million Europeans in 19 member states.


According to the Commission, “it has brought tangible benefits to European households, businesses and governments alike: stable prices, lower transaction costs, protected savings, more transparent and competitive markets, and increased trade. Some 60 countries around the world link their currencies to the euro in one way or another, and euro is going to play even bigger role on the international scene”. All other EU member states, except Denmark and Sweden, are expected to join the euro area once the introduction criteria are met.


Source: Commission’s press release “Euro celebrates its 20th birthday”, in: 

http://europa.eu/rapid/press-release_IP-18-6811_en.htm?locale=en


Latvian 5 years with euro

Latvian road to the adoption of the common currency began with the country’s accession to the EU in 2004. This provided a solid policy anchor and set out major reforms, which required responsible fiscal and macroeconomic policies. Latvian government’s plan to join the euro-zone originated in 2008; however, the crisis came and the national economy was critical asking for the EU and international financial assistance. Things went better: Latvia complete the adjustments and meet the convergence criteria.


In Latvia’s joining the euro, there were many skeptics: some were questioning whether it was a right time to join the euro area. Even presently, the euro is not wholeheartedly accepted: about 63% of Latvians believe it had been a good idea for the country (compared to about 80% in the whole Europe).


At the celebrations in Riga, the Commission vice-president underlined that during these five years “the euro has brought Latvian businesses transparent prices, less currency conversion costs and lower interest rates. It has supported exports, as well as investment. At the end of the day, this translates into growth and a better standard of living for Latvian people”.


Reference: http://europa.eu/rapid/press-release_SPEECH-19-181_en.htm?locale=en

As Estonia joining the euro, it provided and additional impetus for Latvia and later Lithuania follow the positive steps.


Following reforms and protective measures

European authorities are unanimous that the EU urgently needs reforms; some steps have been already made: the European Semester to coordinate member states fiscal and macroeconomic policies; the banking union, which has made European financial sector stronger in the euro area and improved responses to possible crisis through the European Stability Mechanism. Hence, banks in the EU are being better capitalised, supervision is stronger and the average level of non-performing loans has come down. These efforts paid off: the EU’s economy is now entering its sixth year of uninterrupted growth, with record levels of employment.


Important reforms shall be continued: common efforts are needed to provide necessary protection against failure by the Single Resolution Fund, with the European Deposit Insurance Scheme to ensure that all depositors in the banking union enjoy the same high level of protection.


The Commission has elaborated some crisis management tools: reinforcing the European Stability Mechanism, proposing a European Investment Stabilisation Fund, alongside support for the member states’ structural reforms through the reform support program.


The EU capital markets union is aimed at making financial markets more interconnected in order to improve access to capitals for European companies and SMEs, while helping to put European savings to a productive use. Capital markets should play a bigger role in financing companies with the necessary stabilising effect.


Vice-president V. Dombrovskis underlined that Latvia's experience shows that the sooner the countries perform the necessary adoption criteria the better with the importance of cooperation and partnership. As a small economy, Latvia has naturally chosen this direction.


Source:  Vice-President Valdis Dombrovskis Speech “Five Years with the Euro”, Riga, 7 January 2019, in: http://europa.eu/rapid/press-release_SPEECH-19-181_en.htm?locale=en


Euro’s 20 years in the EU: authorities’ comments

Commenting the event, five Presidents of the EU institutions and bodies most directly responsible for the euro made the following notes:  

Jean-Claude Juncker, President of the European Commission, said that the Maastricht Treaty (signed in 1992), which launched the Economic and Monetary Union, EMU and the common currency’s idea opened a new chapter in the EU’s history. The euro has become a symbol of unity, sovereignty and stability; it has delivered prosperity and protection to citizens. However, he added the EU and the member states must continue these efforts and complete EMU and boost the euro's international role.

Antonio Tajani, President of the European Parliament, mentioned that euro has been more popular today than ever: three out of four citizens believe it is good for the economy. In order for Europeans to benefit fully, the member states must complete the EMU through genuine financial, fiscal and political cooperation.

Donald Tusk, President of the European Council, underlined that the creation of the euro 20 years ago was a pivotal moment in the European history. The common currency has since matured into a powerful EU’s expression as a political and economic force in the world; despite crises, the euro has shown itself resilient.

Mario Draghi, President of the European Central Bank, mentioned that the euro was a logical and necessary consequence of the single market. After 20 years, young generation doesn’t know other domestic currencies. During two decades the ECB has delivered on its main task of maintaining price stability, while contributing to the well-being of euro area’s citizens by developing safe, innovative banknotes, promoting secure payment systems, supervising banks to ensure they are resilient and overseeing financial stability.

Mário Centeno, President of the Eurogroup, noted that euro has been one of the biggest European success stories: its importance and impact over the first two decades is obvious. However, the euro and the close economic cooperation that it entails have evolved over time; but the “euro-work” is not yet finished; it requires continuous reforms and efforts.  


More information on the issue in: Flash Eurobarometer: Support for the euro steady at all-time high levels;

Information about the prospective enlargement of the euro area

The History of the euro and the European Central Bank


Reference: Commission’s press release “Euro celebrates its 20th birthday”, in: 

http://europa.eu/rapid/press-release_IP-18-6811_en.htm?locale=en

 

 






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