The journey of the euro

The success of the European Monetary System provides the impetus for further discussions between EU countries on how to achieve an Economic and Monetary Union (EMU). The ‘Delors Committee’ is set up to examine specific, gradual steps towards a single currency. The resulting report proposes concrete steps to achieve an EMU.

First step of the Economic and Monetary Union (EMU): all restrictions on the movement of capital between EU countries are abolished. 

European leaders approve the new Treaty on European Union, in Maastricht, the Netherlands. The treaty includes the provisions needed to implement the Economic and Monetary Union (EMU). Leaders agree on the criteria that each Member State must meet to adopt the single currency. 

Second step of the Economic and Monetary Union (EMU): the European Monetary Institute (EMI) is set up in Frankfurt. The EMI carried out all the preparatory work for the ECB to assume its responsibility for monetary policy in the euro area. Monetary policies are increasingly coordinated and economic convergence is strengthened. 

On 1 June 1998, the European Central Bank (ECB) becomes operational in Frankfurt, replacing the EMI. It is established as the core of the Eurosystem and the European System of Central Banks (ESCB), together with all national central banks of the EU member states. 

Third step of the Economic and Monetary Union (EMU): after a decade of preparations, on 1 January 1999, exchange rates are irrevocably fixed between the 11 participating EU countries. Authority over monetary policy is transferred from national central banks to the European Central Bank. The euro is launched as an accounting currency on financial markets and used for electronic payments. It becomes the official currency of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. In 2001, Greece becomes the 12 country to adopt the euro. 

After three years of using the euro as an ‘accounting currency’ alongside national currencies, the 12 countries swap their old notes and coins for euros. It is the largest currency changeover in history. 

In 2008, the global economic and financial crisis begins and spreads to the euro area. Some countries such as Cyprus, Greece, Ireland, Portugal, and Spain are particularly affected. The EU institutions take swift action to provide financial assistance to these countries and to strengthen the governance and resilience of the Economic and Monetary Union (EMU). In the following years, a number of major initiatives are launched, including the rescue funds EFSF (2010) and the ESM European Stability Mechanism (ESM) in 2012, the European Semester, and the Banking Union. 

In July 2012, in order to restore market confidence and to support euro area countries under pressure, European Central Bank President Mario Draghi announces: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” The statement is followed by a number of measures designed to instil confidence and ensure that the financial markets work properly. This decisive response by the ECB, together with liquidity for banks, low interest rates and future measures like the quantitative easing programme, supports economic growth across the euro area and contributes to a return to the inflation target. The actions taken by the European Union and its Member States put Europe back on a path of recovery.

Supervision of banks in countries using the euro is brought under the Single Supervisory Mechanism, led by the European Central Bank. The purpose of European banking supervision is to make sure that banks in Europe are safe.

In June 2015, the presidents of five European institutions - the European Commission, the European Council, the European Central Bank, the European Parliament and the Eurogroup - publish a vision for deepening the Economic and Monetary Union, known as the ‘Five Presidents’ Report’. These ideas are developed further in several reflection papers in 2017. Implementation begins with the EMU deepening package proposed by the Commission in December 2017, which includes further steps to increase the unity, efficiency and democratic accountability of the EMU and to complete the Banking Union.

In 2015, the Juncker Commission also puts forward the Investment Plan for Europe to reinvigorate investment and boost growth and jobs. A plan to create a true single market for capital in the EU, the Capital Markets Union, is also launched.

The EU, the European Stability Mechanism (ESM), and Member States respond quickly, forcefully and in a coordinated manner to the coronavirus (COVID 19) pandemic. The Single Supervisory Mechanism (SSM) directly supervises the around 110 biggest banks and coordinates the supervision of more than 3000 smaller banks. All economic policy tools are activated to support Member States' in protecting their citizens and mitigating the pandemic's severely negative socio-economic consequences. 

The new SURE instrument provides up to €100 billion in the form of loans granted on favourable terms from the EU to Member States to help protect jobs and workers affected by the pandemic. The European Investment Bank Group proposes a new mechanism to mobilise up to €200 billion in resources for viable firms affected by the crisis. The ESM creates a safety net for sovereigns in the form of the Pandemic Crisis Support instrument. 

As part of the €800 billion NextGenerationEU, the Recovery and Resilience Facility (RRF) makes grants and loans available to support reforms and investments in EU countries. The objective is to mitigate the economic and social damage of the crisis while making European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. 

The ECB launches its €1.85 trillion temporary asset purchase programme, the Pandemic Emergency Purchase Programme (PEPP), to mitigate the impact of the coronavirus pandemic on the euro area economy and to support all Europeans. 

The ECB launches the investigation phase of a digital euro project, which lasts until October 2023. The aim is to look into the possible issuance of a digital euro, an electronic equivalent to cash that would give people an additional choice about how to pay.  

Reacting on high and fast rising inflation - partly because of high energy prices caused by the Russia’s war of aggression against Ukraine - the ECB ends its net asset purchases under the APP and PEPP programs and starts to raise interest rates from negative territory up to a range of 4-4.75 % (deposit facility rate to marginal lending rate).