The Euro completed 10 very successful years on January 1, 2009. On the same day Slovakia became the 16th EU Member State to adopt it, bringing the number of citizens in the European Union who use a common currency to a total of 328.6 million.

Commemorating this occasion President of the European Commission, Mr. Jose Manuel Barroso said, “The euro has helped create 16 million jobs and over time has delivered lower inflation and lower interest rates than ever before. In the current time of crisis the euro is sheltering businesses from the exchange rate volatility, which has battered them in previous downturns. To put it simply, the euro works. I am confident it will go from strength to strength in the next ten years and that we will welcome more members.”

Mr. Joaquin Almunia, the Member of the European Commission responsible for Economic and Monetary Affairs added, “The euro has become the symbol of EU identity and is proving to be a solid and stabilising factor in currency markets both inside and outside the euro area. This is no mean feat as no other markets from banking to securities have been spared by the global financial and economic crisis. We should be proud of that record and we must safeguard the sound budgetary and macroeconomic framework that has made the euro such a success”.

Benefits Galore

Although banknotes and coins were introduced in 2002, the euro was created in 1999 when 11 countries irrevocably locked the bilateral exchange rates of their currencies and equipped themselves with a single monetary and exchange rate policy. The European Central Bank was created six months earlier. In fact, benefits for the citizens of Europe started even before, in the mid 90s, as future euro area Member States started coordinating economic policies in order to tackle inflation in preparation for European Monetary Union (EMU), and reducing government debt.

The EMU has ushered in an unprecedented period of price stability and low interest rates, despite the resurgence of world food prices. Clearly current prices are severely affecting the poorer sections of the population and, till recently, of energy-intensive industries. But the strong, international currency that the euro has become is also offering some protection against these adverse conditions. While the price of a barrel of oil increased nearly five times in dollar terms from 2002/2003 to mid-2008, the price in euros at the petrol pump was substantially lower.

Low Inflation and Interest Rates

The direct benefits of EMU for the citizen include:

• Inflation has reduced in the last 10 years to average 2 percent. This contrasts positively with the early 90s when the average was about double this level and some euro area countries still had double-digit inflation.

• A fall in long-term interest rates to less than 4 percent, half the level of the 90s — some euro area countries had double-digit rates before EMU! For many households this has meant the opportunity, for the first time ever, to own a house while companies have been able to finance their investment plans, contributing to the creation of a record number of jobs.

• The advantage to citizens who no longer need to lose time and money exchanging currencies when holidaying abroad and who can better compare prices of destinations, goods and services, thus increasing the level of competition to their benefit.

• The advantages to companies which are now sure when they sign a deal with business partners elsewhere in the euro area that fluctuating exchange rates will not hit their share of the proceeds. This has boosted trade among euro area countries, so that today one third of the area’s production and half its sales are protected from exchange rate fluctuations.

Fringe Benefits

Although less visible for the citizen, the following benefits are equally significant and real:

• Public budget deficits — in other words the amount that governments spend in excess of their revenues - fell to a record low of 0.6 percent on average in 2007 compared with an average of 4 percent in the 80s and 90s. Such an accumulation of deficits had resulted in rising long-term government debt and more money spent repaying it with interest. So today’s reduced deficits and debts mean putting public resources to better use and reducing the overall tax burden. This is thanks to EU Treaty rules that put a sensible ceiling of 3 percent and 60 percent respectively for deficits and debt.

• European markets are better integrated including in the financial area, which for consumers means cheaper products and services. One good example concerns the cross-border transfers of money that are now treated like domestic bank payments.

• In less than a decade, the euro has become one of the world’s two major currencies, alongside the dollar. This rising international role of the euro provides a shield against turbulences in the global economy and has also contributed to partially offsetting recent steep increases in food and energy prices.

Because economies have become more integrated, better synchronised and better managed with tremendous flexibility, almost 16 million jobs have been created since 1999, compared to less than 12 million in the 90s and just over 2 million in the 80s. This has permitted a reduction of the unemployment rate, which had been rising continuously since the early 80s, to around 7 percent in 2007.

Great Optimism

Can EMU deliver further benefits in the future? Yes. It can and should, if its full potential for citizens is to be realised. Growth has so far been modest in some of its biggest members. With more steps to modernise euro area economies and make them more competitive, building on those already taken under the European Union’s Lisbon Strategy for Growth and Jobs, the euro area should become more competitive and take even better advantage of the single currency. Productivity - in other words the value of goods or services produced per hour worked — needs to grow faster in the future, thus allowing wages to grow faster. For this to happen, Member States must meet their commitments through the adoption of reforms that will unleash the potential of our economies in terms of jobs and growth and by promoting more competitive services markets — including financial markets — and better-functioning labour markets.

Silver Lining

The current global recession has of course hit Europe hard, and a contraction in EU GDP is expected this year. However, the euro has also anchored stability in the euro area, a fact which has never been more in evidence than in the last few months and is protecting its members from the worst of the economic and financial crises in several important ways.

First, the euro has eliminated the possibility of exchange-rate turbulence and speculative currency attacks that its members could have expected in the current turmoil.

Second, the euro area benefits from a European Central Bank whose swift actions to ease liquidity constraints and coordinate monetary policy have recently helped to avert a financial meltdown. Such rapid, coordinated steps by 16 national central banks would have been unthinkable.

Third, the EMU’s stability-oriented macroeconomic framework has better prepared euro-area countries for the downturn in the economy. The fiscal rules of the Stability and Growth Pact helped the euro area achieve its soundest budgetary position in 2007. This meant that many European Union countries have entered the crisis with greater room for manoeuvre.