Since January 1, 2002, 12 countries in EU have introduced their common currency Euro. Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Austria, Portugal and Finland decided to abandon their national currencies, some as old as several thousand years (e.g. Greek drachma) and to opt for more unified financial system. More nations from the current EU members as well as from the future members are also considering adopting the Euro as the only notes and coins in circulation. What makes the new currency so unique and why it's so important for the Europeans?

Since the Roman Empire collapsed some 1,500 years ago there was no common currency in Europe. In different epochs there were currencies with higher esteem (e.g. Venetian ducats, French Napoleons and British pounds) but nevertheless they remained currencies of one state and its dependant territories. The trade between the states with different currencies was difficult as it's in our days. One government can decide at any moment to devaluate its currency and this makes strong repercussions on the money market. People traveling abroad have to exchange their funds, which brings some additional fees. There is always a risk to the investors, because the expected profit can turn into loss if the exchange rate differs significantly.

On the other hand, being into position to make their own currencies, the national governments in Europe were able to proceed with their own financial policy without regard to the neighbors' wishes. In the past France several times devaluated its Franc against all other major currencies in order to keep high its competitiveness and to increase its exports. Right now the US government is trying the same policy regardless of others' complaints. In a world where the economic cycles are not identical for every major market, it's better to have many currencies. On the other hand, when two or more markets decide to proceed with identical financial policy, it's always better to have a common currency in order to facilitate the trade.

That was exactly the reason why the majority of EU decided to introduce common currency and that was made at the turn of the centuries, first as virtual currency known only to bookkeepers and later as real coins and notes. Their example will for sure be contagious and the future EU members already expressed their wishes to abandon their own national currencies when the time is ripe. Perhaps ten years from now there will be only one currency in Europe west of Turkey, Ukraine, Belarus and Russia.

The history of the idea to produce European currency as a financial pillar of EU is relatively recent. In the Treaty of Rome (1957) that founded EU there was no mention of common currency. More recently the Single European Act (1986) and the Treaty on European Union (1992) founded the Economic and Monetary Union (EMU) and laid down the foundations for a single currency in Western Europe. Since January 1, 1999 the exchange rates between the participating currencies were definitively set and the Euro introduction thus became a matter of printing enough notes.

To withstand the Euro it has to be supported by unified financial policy in all participating countries. This means that they have to keep their annual budget deficits within 3% of their GDP. They also have to keep low their inflation. The institution that overlooks this unified financial policy is the European System of Central Banks, including the European Central Bank and the national central banks. It conducts common monetary policy in the Eurozone, setting the basic interest rates, conducting foreign exchange operations and managing the official foreign reserves of the member states.

In economic plan the common currency makes EU much more interesting for the foreign investors, reducing the risks for their investments when transferring their funds from one member state to another. The market becomes bigger and the regional price misbalances are corrected easier when the consumers have common currency to measure the different goods and services. But there are gains on the political front too. Europe from just a dream becomes a reality. When people from many different countries have one common currency they feel closer and build easier one common identity. This common identity is what lacked so much in Europe since the fall of the Roman Empire. There were many to wish to impose their particular identity on their neighbors, but today the Europeans have a chance to do it without being subjugated by some foreign power. It's deplorable that after the Soviet Union has fallen the Europeans have chosen the United States as the enemy for building their common identity. The Euro was considered mainly as a counterweight to the US dollar. We can only hope that the Europeans will soon leave behind their childhood and will assume their bigger responsibilities, political and financial, resulting from their bigger role in the world affairs.

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* - The name itself "Euro" was invented recently (1995) via political compromise. In the previous years Germany had advocated the name "Euromark" but this was met with strong objections by some other EU countries especially France.

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