In 1992, the EU decided to adopt
economic and monetary union (EMU). This resulted in the
introduction of a single European currency, managed by a European
Central Bank (ECB). The ECB was set up in 1998, with its
headquarters in Frankfurt. The ECB is responsible for framing and
implementing the EU's monetary policy, which includes managing the
euro, the EU's single currency.
1 January 1999 saw the irrevocable fixing of exchange rates and
the introduction of the single currency on foreign-exchange
markets and for electronic payments. This required each of the 11
eurozone countries to link its national currency to the euro at an
irrevocably fixed exchange rate, while both meeting and
maintaining a set of economic criteria (as from 1 January 2001,
Greece, the 12th eurozone country, also joined the EMU, linking
its drachma to the euro). Thereafter, until 31 December 2001, the
EU applied the principle of "no
compulsion-no-prohibition", meaning that monetary
transactions in the currencies of the countries that had joined
the EMU could be conducted in any of their individual national
currency units, or the euro, at the choice of the individual or
On 1 January 2002, euro notes and coins were introduced in the
Member States, gradually replacing the old national currencies
("legacy" currencies). On 28 February 2002 the
transitional stage of dual circulation of the legacy currencies
and the euro came to an end.
Thus, the euro ("€") became a reality on 1 January
2002, when euro notes and coins replaced national currencies in 12
of the 15 countries of the EU, namely, Austria, Belgium, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain. Currently, these 12 make up the
eurozone; their central banks, together with the ECB, comprise the
One of the ECB's main tasks is to ensure price stability in the
eurozone, seeing to it that the euro's purchasing power is not
eroded by inflation. The ECB attempts to keep the yearly increase
in consumer prices under 2%, controlling money supply and
monitoring price trends.
The population of the 12 Member States within the eurozone is
about 311,000,000. Beyond its economic impact, the euro is seen by
many to have a significant political impact. The introduction of
the euro has considerably eliminated the inefficiencies resulting
from businesses and consumers having to operate in several
disparate national currencies within the Single Market. The
efficiency gains have come about due to lower transaction costs
and increased competitive pressures through enhanced price
transparency. Hong Kong businesses trading in several eurozone
countries will be only too aware of the advantages of having to
deal - both with other businesses and cross-border customers - in
only one single currency.
The UK and Denmark have an "opt-out" Protocol under
the EU Treaty, which grants them the right to decide, at a later
date, whether to join the eurozone. Sweden is also entitled to
join. All three will need to meet the so-called convergence
criteria. These include achievement of a high degree of price
stability, sound public finance and exchange rate stability.
All 10 new Member States (namely, those which joined on 1 May
2004) are committed to adopting the euro as soon as practicable.
At least three - Estonia, Lithuania and Slovenia - are hoping to
switch to the single currency on 1 January 2007. A second wave,
comprising Cyprus, Malta and Latvia, is aiming for 1 January 2008.
Slovakia has set a target of 2009, and both the Czech Republic and
Hungary, 2010. Poland's position is more vague - although it had
committed itself to adopting the euro, Warsaw has not yet
presented a hoped-for timetable.