The euro is the currency of twelve European Union countries, stretching from the Mediterranean to the Arctic Circle (namely Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland).
Euro banknotes and coins have been in circulation since 1 January 2002 and are now a part of daily life for over 300 million Europeans living in the euro area.
History was made on 1st January 1999 when eleven European Union countries (later to become twelve) irrevocably established the conversion rates between their respective national currencies and the euro and created a monetary union with a single currency, giving birth to the euro.
Euro banknotes and coins entered circulation on 1st January 2002. But the history of euro currency has been a long time in the making and can be charted back to the origins of the European Union itself. The euro currency circulates in the euro area, currently comprising twelve Member States of the European Union (Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland).Certain parts of the euro area are located outside the European continent, such as the four French overseas departments (Guadeloupe, French Guyana, Martinique and R?union), as well as Madeira, the Canary Islands etc.
The euro currency also circulates outside the European Union:
- Third countries having adopted the euro as their national currency: Monaco, the Vatican City and San Marino;
- Overseas territories where the euro is official currency: Saint-Pierre-et-Miquelon and Mayotte;
- Countries and territories with euro as de facto currency: Andorra, Kosovo and Montenegro.
Several countries and territories have linked their currencies to the euro through different types of agreements. Some of these agreements were concluded with the EU, while others are unilateral:
- Exchange Rate Mechanism II (ERM II): Denmark, Estonia, Cyprus, Latvia, Lithuania, Malta, Slovenia and Slovakia;
- Bilateral exchange-rate agreements: CFP franc area, CFA franc area, Comoros Islands and Cape Verde;
- Unilateral exchange rate regimes offering the euro exchange: Bosnia, Botswana, Bulgaria, Croatia, Czech Republic, FYR Macedonia, Herzegovina, Hungary, Israel, Jordan, Lybia, Morocco, Romania, Russia, Serbia, Seychelles, Tunisia and Vanuatu.
There are a number of clear benefits to having a single European currency which were the major motivations behind the creation of the euro currency. Practical benefits for citizens travelling with the euro currency:
Single market: reaping the full benefits of the EU's single market;
Single financial market: benefits for savers and borrowers;
Macroeconomic framework: benefits of a single currency to the economy as a whole;
Europe's role in the world: advantages for Europe's international role;
Political integration: benefits related to the wider process of integration
Academic research on the relative merits of fixed and flexible exchange rates (optimal currency area) also points to a number of economic challenges for countries participating in a single currency. These include increasing the mobility of labour and capital and encouraging trade and stronger competition.