THE EURO CURRENCY.
What is the euro?
It is Europe's new currency, which 11 EU countries will be using from Jan 1, 1999. Plans
for European economic and monetary union were agreed by community heads of government at
Maastricht in 1991. John Major secured the right for Britain to opt-out.
Is there a symbol for the euro,
like that for sterling?
Yes. It looks like the London Underground sign with a third of it chopped off, or a
rounded version of the sterling symbol.
Whose idea was it?
The EC's founding fathers were talking about a single currency by the late 1950s. They
believed monetary union would promote cross border trade and be a symbol of unity in
post-war Europe. After several false starts Jacques Delors, Helmut Kohl and others intent
on economic and political integration revived the plan in the mid-1980s.
Which countries will take part
at the start?
France, Germany, Luxembourg, Belgium, Holland, Italy, Spain, Portugal, Finland,
Austria and Ireland. The area covered by the 11 members has become known as
"euroland" or the "euro zone". It will have a population of 290
million.
Which countries will be outside?
The other four EU states - Britain, Sweden, Denmark and Greece. The first three will
not join because they are not sure it will work. They want to see it in action before
taking the plunge. Greece wants in quick - but failed the economic entry tests.
Why is it so controversial?
Because it will mean national governments giving up powers to run their own economies
to a European Central Bank in Frankfurt, Germany. The ECB will run monetary policy and set
interest rates that will apply across the whole of euroland.
What is the point of having a
single currency?
Supporters say it will bring the following economic benefits:
1) Make life simpler and cheaper for businesses, consumers and holidaymakers who will no
longer have to pay to change money from currency to currency.
2) Allow shoppers to compare prices for the same goods across Europe. This will make
pricing more "transparent", ensure companies do not charge different amounts in
different euroland countries, and stimulate competition.
3) Allow businesses to plan better as they will no longer be affected by sudden variations
in exchange rates.
4) Enable Europe to pack a larger punch on the world stage as the euro becomes a rival to
the US dollar and the Japanese yen.
Are there not political motives
too?
Yes. Germany and other member states see the single currency as a way of accelerating the
process of political union in Europe. As more power drains away from national governments
to EU institutions, the European state comes closer.
What will actually happen on Jan
1, 1999?
The exchange rates of the national currencies in the 11 participating countries will
be fixed or locked against the euro - for good. Then trading in euros can begin, and
non-cash transactions can be carried out in the new currency.
The 11 national currencies of the euroland countries will continue to be used for cash transactions until 2002.
Will there be euro notes and
coins?
Yes. But these will not come into circulation until Jan 1, 2002. For six months after
that, the new notes and coins will circulate alongside national currencies.
This is known in EU jargon as the period of "dual circulation". Then on July 1, 2002 at the latest, the euro will take over and the old national currencies will no longer be legal tender.
How many different notes and
coins will there be?
There will be five, ten, 20, 50, 100, 200 and 500 euro notes and one, two, five, ten,
20 and fifty euro cent coins, plus one euro and two euro coins. An estimated 80 billion
coins will go into circulation in 2002. One euro will be worth about 70 pence.
Will there be national symbols
(King's and Queen's heads etc) on the notes and coins?
Yes, for the coins - but no for the notes. The European Central Bank recently decreed that
reserving a place on euro bank notes for national symbols would be too complicated. But
the Queen's head will appear on the one side of the coins that has been reserved for
national symbols, if Britain joins.
What will happen to the billions
of francs, marks, lira and coins and notes of other currencies that are for the chop?
They will have to be handed in to banks and exchanged for euros. Or people can keep
them as souvenirs. Several countries are thinking of employing their national armies to
collect all the coins and notes and to distribute the new euros.
Will people in Britain be able
to use the euro, even though we're not entering EMU?
Yes - although not everywhere by any means. Some British shops are getting ready to
accept the new currency for non-cash payments. Marks and Spencer is spending over £100
million adapting its tills to make them "euro friendly".
From Jan 1, 1999, people who shop at M&S in the UK will be able to make non-cash payments with euro-denominated euro cheques, euro-denominated travellers cheques and euro-denominated personal cheques drawn on a UK bank account.
Will Britain suffer economically
because we are staying out?
Many people in Europe say we will. They claim that the euro will be so strong and
successful that interest rates and inflation will be lower than in Britain. Companies,
they add, will also not be able to benefit from the full benefits of the euro. But this
rosy scenario for euroland has yet to be proved.
Will Britain have to join in the
end if it works?
No, although pressure to do so will grow. Denmark and Sweden are edging closer towards
joining and Greece is likely to be in by 2002. Britain's EU partners warn that the UK will
also lose political influence in the EU as it will not be party to discussions on how
Europe's economy is run.
Aren't the euroland countries
going to meet in some exclusive new club - from which Britain will be excluded?
Yes. They have already set up "Euro-11" (named after the 11 members). This
meets every month to discuss coordination of economic policy in euroland. Gordon Brown,
the Chancellor, wanted to be included as a full member Euro-11. But he was told by the
French and others that he could only come when they invited him - until Britain signs up
to EMU. Brown felt humiliated.
Who is the person in overall
charge of the euro?
Wim Duisenberg, a Dutch banker, has been chosen as President of the European Central
Bank and will be - arguably - the most powerful man in Europe from Jan 1. Along with
governors from national central banks in euroland he will make all the key decisions on
interest rates and the money supply.
Will euroland countries be bound
by tough spending rules?
Yes. They will all have to keep their deficits down to three per cent, or less, of
output. If they go above this level they can be fined up to 0.5 per cent of output, under
the terms of the EMU "Stability Pact".
What's the point of fining a
country that overspends?
Helmut Kohl - the chief advocate of a tough Stability Pact - argued that unless there
were deterrents against high spending, the euro would become prone to inflation and would
not be as strong as the Deutschmark.
The French were less keen on the idea because they think governments should be able to spend their way out of trouble.
Could the whole project go
terribly wrong?
Yes - and some people fear it will. The problem, say sceptics, will be that one set of
economic rules cannot be made to work for 11 very different economies.
So what could trigger a crisis?
If, say, the south of Italy, Spain or Portugal were to suffer a terrible economic crisis -
a "seismic shock" - the governments of those countries would need to take
special measures to help resolve the crisis.
But they would be limited as to what they could do so as they would be bound by the Pact's tight spending rules and would not be able to bring down interest rates which are set by Mr Duisenberg and the bankers in Frankfurt. Some say the inability of governments to act in crises could trigger a collapse of public support for EMU.
Will the euro lead to
harmonisation of taxes?
Not to begin with - although there is pressure to move in that direction. Some
politicians in Germany, France and Italy - the big three members of EMU - say that if all
countries are to be bound by the same economic rules, then one tax system would make
sense.
Once a country joins, could it
pull out?
There is no legal provision in the Maastricht Treaty for getting out, so, strictly
speaking, No. This is why William Hague described EMU as a "burning building with no
exits". But a country that really wanted to would probably be able to break free
although the costs and complications would be huge.