978 - 9 - 279 - 09842 - 0 - The Euro : The First Decade

On 1 January 1999 eleven EUMember States adopted a new currency – the euro. The introduction of the euro was a remarkable feat in the history of European monetary, financial, economic and political integration. It was an event of world significance. Many sceptics had predicted that Economic and Monetary Union (EMU) would never take place or, if it were created, would quickly collapse. In the first years, perceptions about the euro were under the shadow of foreign exchange rate movements as the euro rate plummeted well below parity against the US dollar. Moreover, popular perception suffered as the changeover to the euro banknotes and coins coincidedwith rising energy and food prices. In many countries the euro was unfairly perceived by public opinion as substantially contributing to the increase in prices. However, the first decade of the euro area was very successful. It was the result of a coherent framework for stability-oriented policies. At the same time it benefited from favourable supply conditions – associated with fast technological progress and globalisation – justifying accommodative monetary policies all around the world. Moreover the fiscal position inmany countries benefited fromwindfalls associatedwith booms in real estate and other assetmarkets. The first decade of the euro areawas a period of remarkable macroeconomic stability between two major challenges: the challenge, in the early years, of establishing the credibility of the new regime and, at the end of the first decade and still ongoing, the need to respond to the global economic and financial crisis. The euro area, with sixteen members in 2009, has a population of 326million – 5 per cent of world population – and contributes 16 per cent