Exactly 20 years ago, on January 1, 2002, the euro took on a cash form, and residents of 12 states received the first coins and banknotes. Today, the euro has replaced the national currencies of 19 countries, which are home to 340 million people.
The introduction of the single European currency has increased the inequality between the countries of the Eurozone. It also generated many predictions – some with fear and others with hope. Who turned out to be right after 20 years? Understood by Deutsche Welle.
For the first three years, the new European currency was actively used in non-cash payments – trade operations and bank transfers. On New Year’s Eve 20 years ago, coins and banknotes were first picked up by residents of Germany, Belgium, Austria, Spain, Greece, Ireland, Italy, the Netherlands, Luxembourg, France, Finland and Portugal. A new era has begun in the history of the EU, and there is uncertainty ahead: the creation of a large-scale monetary union has given rise to many predictions. Dw dealt with the main ones.
Over time, the UK will join the eurozone
Fact-checking DW: the forecast did not come true
Of all the predictions, this turned out to be the most flawed. The issue of the transition to the euro was to be discussed at a national referendum – there were many supporters in the country, first of a parallel circulation of the euro, and then, in the longer term, a complete rejection of the pound. However, after the vote on Brexit, the issue disappeared by itself – Great Britain did not join the eurozone and left the European Union.
Euro will become the new reserve currency
Fact Checking DW: Forecast Confirmed.
Reserve currencies are called currencies that are widely used outside the countries where they are official means of payment, and they hold part of the foreign exchange reserves of the central banks of other states. Indeed, the euro has become the second most important reserve currency in the world, behind only the US dollar, which remains the leader.
According to the IMF, in the second quarter of 2021, more than 59% of all official foreign exchange reserves on the planet were denominated in US dollars, 20% in euros. In the Russian NWF, 40% of the accumulated funds are kept in euros. In international settlements, the euro and the dollar are used in approximately the same way. According to the statistics of the global interbank system SWIFT, in October 2021, EUR accounted for 38.1% of the transferred money, and USD – 39.1%.
The euro will not be as hard currency as the deutsche mark
Fact checking DW: not true.
In 2002, the Germans had a hard time parting with the Deutsche Mark, which was rightfully considered an especially hard currency. Only a quarter of the German population believed in the firmness of the new currency being introduced, as shown by the polls. However, the reliability of the single European currency is eloquently evidenced by at least the fact that it is recognized throughout the world as one of the 2 most important reserve currencies.
Another indicator is low inflation. Over the past 20 years, it averaged 1.6% per annum in the Eurozone. And the German mark, during the last 20 years of its life, depreciated by an average of 2.4% every year. However, the stability of the euro cannot be a guarantee for the future – now the rate of inflation in the eurozone has accelerated sharply.
Aggravation of the problems of southern European countries due to the refusal of national currencies
Fact checking DW: forecast confirmed
At the end of the last century, the economies of the countries of southern Europe did not develop as dynamically as in the north, and their national currencies were significantly less firm than the German mark.
The introduction of the single European currency has become a powerful impetus for economic development and mutual trade in the euro area: the total GDP of those first 12 countries that switched to cash euros grew by almost 50%. This is tangible progress, although the US economy in the United States has grown, on average, twice as fast all these years.
The transition to a single hard currency, on the one hand, provided the southern states with a sharp reduction in the cost of socio-economic development and loans for business expansion. But on the other hand, he aggravated their economic problems. By the way, the reverse side of the positive phenomenon was the rapid increase in government debt, which led to a debt crisis in the early 2010s.
The economies of Italy and Greece, for example, due to the transition to the euro, have lost a proven means of increasing the competitiveness of their businesses – devaluation. Previously, it was only worth lowering the exchange rate of the drachma or lira in order to make export products cheaper for holders of hard currency and to increase the price attractiveness of these two countries for tourists from abroad.
After the abandonment of national currencies, this mechanism disappeared. Many companies in southern Europe could not compete with manufacturers from other eurozone countries and went bankrupt. This caused a sharp rise in unemployment, the level of which is still quite high in many EU countries.
However, there is also a positive moment – the transition to the euro has become a rather tough, but effective incentive for the implementation of overdue reforms and comprehensive modernization in the southern countries of the Eurozone. This is noticeable both in Greece, which is now clearly on the rise, and in Italy, which this year has become one of the leaders in terms of economic growth in the European Union.