The euro marked its 20th birthday on January 1. On the first day of 2002 nine EU member-states gave up their national currency and adopted the euro. Proof of the euro’s success was that it has been adopted by another 10 countries in these 20 years with more scheduled to join in the near future. A stable currency for 19 countries is quite an achievement.
Cyprus entered the euro zone 14 years ago in 2008, and even though there were calls for leaving it during the economic meltdown of 2013, wiser heads prevailed. Although one systemic bank was closed down and the other bailed in deposits above €100,000 we still had a stable currency that limited the disruption caused to the economy.
The biggest crisis faced by the euro was Greece’s debt crisis in 2011-2012, as well as those in Portugal and Ireland, while the Italian banking sector also had to be shored up. Overall, however, the countries of the euro zone have enjoyed 20 years of exchange rate stability, not to mention the way the euro has made transactions much easier for businesses and consumers within the zone.
“For 20 years now, we Europeans can carry Europe in our pockets,” said the president of the European Commission Ursula von der Leyen to mark the anniversary. “The euro is not just one of the strongest currencies in the world. Above all it is the symbol of European unity.”
Despite the celebrations, some economists have warned that the third decade of the euro could be a difficult period because of rising inflation across the zone. Economists point out that the first 20 years of the euro’s life were deflationary, the globalised supply chain a major factor in pushing down prices. The inflation rate across the zone is now 4.9 per cent and could rise.
The European Central Bank proved a cautious and prudent manager of the currency, avoiding the level of quantitative easing introduced by other big economies after the 2008 global crisis. This monetary conservatism was abandoned during the pandemic and the ECB has been printing money every month, while countries like the US have scaled down the QE and are raising interest rates.
The danger is that rising debt combined with rising prices could cause both investors and ordinary citizens to lose faith in the euro. The former president of the Bundesbank, Jens Weidmann, who stepped down in October, had strongly opposed the ECB’s quantitative easing and warned in his resignation letter about the “inflationary dangers”.
We can only hope that economist’s fears are exaggerated and that the next decade will be as big a success for the euro as its first 20 years of existence proved.