The euro

The story of the euro (der Euro)
The euro in Austria, Germany and Europe

On January 1, 2002, twelve European Union countries, including Austria and Germany, put a brand new currency into circulation: the euro. Average Germans were not so sure they really wanted to give up their strong Deutsche Mark for this untested new money. The Austrians were also rather fond of their Schilling. But it was auf Wiedersehen to the old and in with the new.

The ECB tower in Frankfurt

The European Central Bank (ECB) is the eurozone equivalent of the Fed, regulating Europe’s common currency. The new ECB complex towers above Frankfurt am Main. PHOTO: Wikimedia Commons

In reality the true birth of the euro took place in 1999. Before it went into circulation as a cash currency, the euro (der Euro, dare OY-row, in German) spent three years of its life as so-called Buchgeld (money on account) used for cashless transaction by banks and stock markets in the “eurozone.” At the dawn of 1999, the German mark, the Austrian schilling and other currencies were each set at a fixed, irrevocable rate against the euro. After that, the value of a Deutsche Mark or an Österreichischer Schilling depended on its relationship to the euro. Despite the fact that it was not yet in circulation, the euro became the legal “coin of the realm” in the then eleven countries of the zone.

2015: The Euro’s Fall
Because of the rapid drop in the euro’s value against the US dollar in early and mid-2015, the dollar valuations for the euro in past articles and blogs on our site may be inaccurate. They are mostly based on an exchange rate that generally hovered around $1.30-1.40 for one euro. In mid-March 2015 the euro had dropped to $1.07. While many observers predicted euro/dollar parity later in 2015, by spring 2016, the euro had risen to about $1.13, and the price of oil was around $40 a barrel. – We will try to revise our articles and blogs over time, but for now, be aware that the dollar values stated for euro prices may fluctuate. – Test yourself on your euro knowledge with our self-scoring Euro Quiz.

In an effort to strengthen the European economy and eliminate intra-European trade barriers, the Council of Europe (Europäischer Rat) had met in Madrid in December 1995. The old ECU unit (created in 1979) was renamed the “euro,” a term that seemed to work well in all of the languages in the EU — and the new name was free of any lexical connection to existing national currencies.

Euro Facts
The attractive euro banknotes were designed by an Austrian — on a Mac! The shiny new coins were designed by a Belgian. The euro symbol (€) was created by a German. Learn more on our Euro Timeline page.
How much is a euro worth today? See our Currency Converter.

Over the three-year period of 1999 through 2001, the citizens of euro-countries were supposed to get used to the idea of the new money’s arrival, while government and business prepared to put it into circulation. Technically, the mark and other European currencies were just tandem partners to the euro, the true legal tender in all of the euro zone nations.

World First currency transfers

euro sign

What do you know about the euro?
PHOTO © H. Flippo

On January 1, 1999, its first official day of “cashless” trading in Sydney, Australia (the international date line and all that), the euro debuted at 1.1747 US dollars (USD), a positive sign to those who saw the euro as serious competition for the dominant world currency, the dollar. But the euro exchange rate later plunged below a dollar, reaching a record low of 82.30 cents on October 25, 2000. Supporters claimed the euro would gain strength once it finally got into the hands of consumers as spendable cash, and by mid-2004 it had indeed climbed to around $1.20 USD, also reflecting weakness in the dollar. By the end of 2007 the currency had reached new record highs against the dollar: one euro cost over US$1.44. During 2008 the euro peaked at around US$1.60 before the mortgage crisis in the United States threw a monkey wrench into the world economy. By March 2009, the euro had fallen back almost to 2004 levels, in the US$1.27 range, but by September 2009, the euro was again climbing close to US$1.50.

The Euro from 2002 to 2016
Below is a chart showing the average euro/US dollar exchange rate for January of each year from 2002 to 2013. The chart begins with 2002 because that was the year when the euro went into circulation as a cash currency. The record high for the euro against the dollar was $1.6040 on July 15, 2008. The record low ($0.823) occurred in July 2000, when the euro had not yet gone into circulation. From the chart one can see that the euro has been fairly stable, mostly staying in a range of about $1.25-1.35 USD. Despite all the economic turmoil in the intervening years, the euro exchange rate in January 2013 ($1.33) was very close to the rate in January 2005 ($1.31). Cont’d. below. >

EURO USD chart

In January 2014 the rate climbed to about $1.37 per euro. A year later, as 2015 began, the euro had dropped to around $1.19, reflecting Europe’s weak economy and ECB president Mario Draghi’s earlier hints of quantitative easing. By mid-March 2015 the euro was rapidly approaching parity with the dollar, hitting $1.07 on March 11, the lowest dollar/euro rate in 12 years. The last time one US dollar equaled one euro was in 2002, the first year the new European currency was in circulation. The rapid fall of the euro in early 2015 caused Deutsche Bank to revise its outlook, predicting euro-dollar parity by the end of 2015. As 2016 began, the euro remained at about $1.08, but by April one euro cost about $1.13. The Swiss franc was at dollar parity or slightly higher, but it had already reached that point in March 2015, dropping from previous highs versus the euro and the dollar.

The Greek Crisis
In early 2010, it was discovered that Greece had been cooking its books and was in serious financial trouble, forcing other eurozone countries to deal with a possible national bankruptcy. Several other EU members (Italy, Portugal, Spain) had troubled economies suffering from the worldwide recession. By mid-February 2010 the euro had dropped to an exchange rate of around US$1.36, from about $1.50 a year earlier.

Test yourself on your euro knowledge with our self-scoring Euro Quiz.

In January 2007 Slovenia became the first country to join die Eurozone since the euro’s 2002 debut, raising the number of countries using the euro from 12 to 13. On the first day of 2008 two more EU countries began using the euro: Cyprus and Malta, making the total 15. Slovakia made it 16 in 2009. (In the meantime, the EU had also expanded from 15 to 27 members.)

Estonia, Latvia, Lithuania
Some people were surprised in 2013 when the former eastern block country of Latvia was approved to become the 18th euro nation beginning Jan. 1, 2014. But Latvia wanted to cement its EU membership and move away from its former Russian ties by also becoming part of the euro zone. Back on January 1, 2011, Estonia had become the 17th euro country for similar reasons. After a delay of several years, a third Baltic state was approved to join the euro in January 2015. Lithuania thus became the 19th eurozone member.

However, the euro remains in a state of insecurity with its inability to coordinate economic policy for 19 different national economies. Apparently, a few countries were using the euro to cover up domestic fiscal mismanagement. When they could no longer hide that fact, the rest of the eurozone had to bail them out in order to protect the currency. Greece, in particular, became a major problem for the eurozone in the fall of 2011, with Italy’s high cost of borrowing a close second. By 2013/2014 the situation seemed less severe, but Greece still remains a potential trigger for more euro difficulties.

As the Cyprus banking crisis in early 2013 and the 2014-2015 Greek debacle have reminded us, the euro crisis remains largely unsolved. Although the euro and European unity are inexorably linked, the economic uncertainty in Europe may continue for years to come.

Next | Euro Timeline

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