Europe's single currency has come of age early. The euro turns ten on Jan. 1, a milestone for one of the most powerful symbols of European identity. It has already endured a rite of passage over the past few months, as the global financial crisis battered European markets yet failed to fluster the euro. And, like any debutante, it has its suitors: a string of countries lining up to dump their national currencies and join the euro zone.TIME
It's a remarkable achievement for a currency whose only global rival is the U.S. dollar. The greenback has over two centuries of history behind it. But it wasn't until Jan. 1, 1999 that 11 E.U. countries locked their national currencies together into a fixed exchange rate. Three years later physical coins and notes became available, replacing national cash in a massive changeover operation. (Read TIME's Top 10 business deals of the year.) The euro zone is now 15 members large and has a combined population of around 320 million.
However, many more people are directly affected by the euro, from would-be members whose currencies are already pegged to it, to countries like Montenegro and Kosovo whose effective national currency is the euro. France's former African colonies also peg their common currency to Europe's. That means around 500 million people rely on the euro or euro-pegged currencies. European Commission President José Manuel Barroso credits the euro for delivering lower inflation, lower interest rates and greater price stability, and helping create 16 million jobs.
More immediately, the euro is shielding member states in this time of economic turmoil, preventing a currency crisis in addition to the credit crunch. "The euro is sheltering businesses from the exchange rate volatility which has battered them in previous downturns," Barroso said on Monday. "To put it simply, the euro works." Before the euro, a financial crisis in Europe went hand-in-hand with currency woes: a run on weaker currencies, heavy intervention by central banks and finally a collapse of the parity system. "I've lived through currency devaluations, and they are fraught with anxieties," says Hans Martens, chief executive of the European Policy Centre. "But the way the euro coped with the financial crisis was absolutely great.
You have a big island of stability, with small nations protected when the big waves became rough." The euro's tenth anniversary will see the euro zone take on a 16th member, Slovakia. A further eight other central and eastern European countries have set themselves the goal of joining within the next six years, including Poland, whose political establishment dropped its longtime opposition after a recent run on the Polish zloty.
The euro has found some other unexpected converts, too, thanks to the financial crisis. The Danes voted against joining the euro zone in 2000, but they are set to hold another referendum in March. Iceland not even an E.U. member is pondering "unilateral euroization" after seeing its krona plunge nearly 80% against the euro between September and October. Read more at Time Magazine 01/01/09
