History of EuroIn the aftermath of World War II, an attempt to stabilize the European continent led to the formation of the European Economic Community. Their goal was to develop and promote an integrated economic system among the member states. The theory was if these countries are united in a shared currency, then fighting would cease and their economic cycles would synchronize (European Commission, 2017). The idea worked and in 1993 the European Union was established, this economic community created the common currency we know today as the Euro (European Commission, 2017). This currency has been adopted by 17 of the 27-member states (European Commission, 2017) which made trade between member nations easier. Since its conception, it has led to an extremely strong economy in the European Union. All the countries that have joined in sharing single currency are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain, they are called the Eurozone. The European Central Bank in Frankfurt, Germany is tasked with making the monetary policy for the entire euro area (Bank, n.d.).
Purpose of Euro
The Euro is used to unify its member states in a single currency (European Commission, 2017) and since its inception has globally become the second major economy and America’s top trading partner.
Did Spain adopt the Euro as their currency?
In January 2000, the Euro was introduced into Spain’s economy for a transitional period of three years (European Commission). During this time, the Euro, and the Spanish peseta (previous currency) were being used. However, the dual circulation ended on January 28, 2002, when the official currency became the Euro (Marsh, 2009).
Euro value against the U. S dollar
A single euro is a coin made up of 100 cents (European Commission, 2017) like the U.S. one dollar, which is a paper bill that also equals 100 cents (IMF, n.d.). For years, both the euro and the U.S. dollar seem to be paralleled in their value and worth. It is challenging to compare the difference between them because the value changes constantly due to supply and demand (Marsh, 2009) reported by the global market. As of June 2017, one U.S. dollar converts into 0.86 Euro, while the euro is worth $1.12 which means when you convert a euro into U.S. currency it gives you 0.12 cents more on the dollar in goods and services (IMF, n.d.). This means a U.S. dollar can buy more in the European Union. However, my research revealed thus far the U.S. dollar continues to hold its position as the top international currency with the euro a close second choice for a global currency.
European Union common currency challenges
The first issue for European Commission has been the European Central Bank’s challenge in responding to demand by lowering interest rates. Why? Because the European Central Bank’s decisions on monetary policy must include all member states participating in the union (Marsh, 2009). For example, one country may have interest rates that are too high in an economy struggling with unemployment, while another has extremely low-interest rates where their wages are rising fast. However, the European Union biggest challenge is its need for unity in social attitudes among its member states, not only in currency, but in their fiscal union (e.g., taxes, government revenue) with common spending and public debt that is shared. However, it takes time to create such a fiscal union and banking union because there are regulatory and constitutional changes required to govern such an integration (Marsh, 2009). Another challenge in unifying the member states is there are seventeen different nations in the Eurozone and unification is challenging due to each country is concerned about the welfare of its own citizens. Today, they are fighting about which of them (i.e. Germany, Spain, Greece) should be responsible for the other’s bad spending habits due to the euro is now showing signs of crisis.
- European Commission. (2017, May 10). Retrieved July 22, 2017, from https://europa.eu/european-union/about-eu/institutions-bodies/european-commission_en
- Bank, E. C. (n.d.). European Central Bank. Retrieved July 23, 2017, from https://www.ecb.europa.eu/
- IMF — International Monetary Fund Home Page. (n.d.). Retrieved July 20, 2017, from http://www.imf.org/
- Marsh, D. (2009). The euro: the politics of the new global currency. New Haven: Yale University Press.