An economic and monetary union between the members of the European community was first attempted in the 1960s, but the euro wasn’t created until January 1, 1999. It was finally put into use in 2002, and it was slowly taking over the former national currencies.
The European Economic Community needed a way to reduce the currency exchange rate fluctuation. In 1969, Pierre Werner, prime minister of Luxembourg, proposed a plan to centralize the national macroeconomic policies by fixing parity rates and allowing flexibility of the capital. He did not, however, mention establishing a central bank and a single currency. The plan failed.
In 1979, the European Monetary System was created, which stabilized the exchange rates. The Community continued developing the monetary system, and finally, in 1988, France, Italy and the European Commission established a central bank. A year later, Jacques Delors, Commission president, introduced a plan for European Monetary Union, including the need to create institutions like European System of Central Banks. The ESCB would build and apply the monetary policy. With the signing of the Maastricht Treaty in 1992, the members of the European Community, except the UK, agreed to create a single currency.
Shortly after, The European Monetary Institute was created, and in 1995 the name ‘Euro’ was accepted as the currency name, instead of the originally planned ‘Ecu.’ The creation of the euro required budgetary discipline and ways to ensure its stability versus other national currencies of the countries not yet members of the EU. Thus, Stability and Growth Pact was adopted along with a new exchange rate mechanism. Strict requirements were also set to participate in the new currency: the country’s budget deficit had to be less than 3% of the GDP; debt ratio—less than 60% of GDP; low inflation, and interest rates—close to the EU average.
The production of the euro required three years as 7.4 billion notes and 38.2 billion coins had to be made. At midnight on January 1, 1999, the Euro was launched virtually—via electronic transfers, banking, etc. The countries from the eurozone had to set their national currencies to fixed rates against each other. The old currencies were still in use until the euro coins and notes were released in 2002. The transition to the euro was overall smooth, with just a few problems. Its value was steadily rising to reach—and even exceed—1.50 dollars in 2009.