EUERC

Single currency

Perhaps one of the most radical measures taken by the European Union was the establishment of a single currency.

The euro is now the everyday tender of 13 European Union countries, stretching from the Mediterranean to the Arctic Circle.

Those nations that have adopted it are Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland, and, as of January 2007, Slovenia.

Euro banknotes have been legal tender since 1 January 2002 and, having swept away national currencies in countries taking part, are now used by more than 300 million Europeans living in the euro area.

The decision to adopt the euro was based on the desire to help businesses trade more efficiently within the Union, unencumbered by having to deal with different national currencies.

The eradication of exchange rates also had great advantages for businesses because it reduced transaction costs, including the need to operate accounts in different currencies.

Adopting the euro also protected businesses and individuals from the effects of fluctuating exchange rates and removed many uncertainties for importers and exporters, making it easier for them to assess their costs.

And although critics of the new system claimed that the new euro would simply be as unstable as its most unstable national user, it has actually proved a reliable currency.

Research has also suggested that since the euro was introduced, there has been significant growth in trade between countries in the zone, partly because of greater confidence bought about by the stability which the euro provides. European businesses can also plan future investment with greater confidence owing to that stability.

The creation of the Eurozone has drawn more foreign investment into the area. The euro makes trade easier for foreign companies as well as European ones.

Consumers have also benefited because the single currency has brought about price transparency. If everyone uses the euro, the cost of goods are clear. Manufacturers are less able to disguise price differentials in currency exchange rates.

And with the euro making it easier to travel and buy goods and services abroad, EU nations are seeing greater investment and more competition, which, in turn, is driving down prices.