Euro is turning 20! The rough path of the European currency

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On January 1st, 1999 the world saw the introduction of the euro, since then the road has not been easy, but it laid solid foundations for the future

The German mark, the Spanish peseta, the Italian lira, and the French franc are just some of the national currencies displaced by the euro, which was born on January 1, 1999, and took 3 years to become common currency.

Leer en español: 20 años del euro: el tormentoso camino de la moneda europea

At first, the euro only served to unify the performance of the 22 currencies of the now called eurozone. From the beginning of 1999, the value of these 22 currencies would no longer be calculated independently. Instead, the euro, created from the value of each of these currencies in January 1998, would be used across the eurozone.

The bills would not go into circulation until 2002, but since 1999 the common European currency existed virtually, as traveler's checks and electronic transactions.

From that moment, each of the 22 countries that adopted it would have to submit to strict exchange regimes. Among them, a fixed rate with respect to the euro, so that later it could be introduced in the form of paper money to be fully integrated into the life of the common European.

A history of instability

Twenty years ago, when the euro was introduced, it was valued at 1.16 euros against the dollar. Its early years were turbulent and given the skepticism of investors and markets that did not trust the longevity of the process. Rather, it plummeted with speed, losing almost half of its value during its first 3 years of circulation.

The lowest point in the history of the euro came shortly after its introduction. In 2001 its price fell low to a historical: 0.85 euros against the dollar.

But, soon the currency found its rhythm. Driven by the sense of convenience of European banks, domestic loans (ie, between banks in the eurozone) skyrocketed, reaching a quarter of all loans issued by European banks in 2008, according to The Financial Times. This figure showed how the adoption by large lenders ended up sealing the subsistence of the euro.

2001 price would become an anomaly, and the value of the euro would continue to rise relatively uninterrupted until 2008. In that year, just before the outbreak of the global financial crisis, the euro reached the highest price in its history: 1, 58 euros against the dollar.

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A history of crisis

2008 global financial crisis was the beginning of the problems for the still young European currency. In 2009, the currency would face his toughest test to date, the euro crisis.

With the complicity of the common currency, many countries in the eurozone, mainly Greece, Portugal, Ireland and Spain, found themselves in a serious situation. It was impossible for them to pay, without assistance from third parties, the debt that their governments and commercial banks had acquired.

Here the greatest problem of the euro was evident. Of course, there was a currency union; all the countries in the area used the same currency, with the same value. What there was not was a fiscal union; each country used that currency as it pleased. Countries with unsustainable pension regimes and inefficient tax collection systems began to fall and drag the value of the euro with them.

It is here when the European Central Bank enters, led by Mario Draghi, having the mission of saving the euro. After years of instability and doubts due to the euro crisis, which triggered speculation about a premature end to the innovative common currency, the European Central Bank declared its full support for the currency and its willingness to save it from the tragedy of Debt.

"Within our mandate, the European Central Bank is willing to do whatever is necessary to preserve the euro. And believe me, it will be enough.” Draghi stated during a conference in London in 2012.

And that was the case, as a package was introduced with stabilization measures for the currency, low-interest loans for all members of the eurozone to finance their existing debt and a rescue package for the most affected. Draghi's speech and the measures that followed it gave new life to the euro, and what is more, cemented its position as a permanent currency.

A successful story

Despite serious setbacks along the way, the euro remains standing 20 years later. Today it is levied at 1.14 euros against the dollar, almost the same as when it was born in 1999. Just when it seemed to have found stability, the Brexit referendum put more question marks after its name, and with each year it extends the process of secession of the United Kingdom, doubts grow.

In the same way, the adoption of the euro has been satisfactory for ordinary citizens. The commitment shown by the European Central Bank to keep it alive at any cost has finally established it as an international currency and has satisfied Europeans with its ability to retain value.

While, according to Eurobarometer figures, in 2013 only 62% of Europeans supported its continued existence, today they are more than 75%. Looking to the future, it seems that young people no longer contemplate another option: almost 90% of them do not use the previous currency to do accounts or do not remember their value. The euro is here to stay; the question is not whether it is going to navigate the coming crises, but how it is going to do it.

LatinAmerican Post | Pedro Bernal

Translated from: '20 años del euro: el tormentoso camino de la moneda común europea'