PALO ALTO – The beginning of 2009 will long be remembered for terrible economic news and controversial economic policy in virtually every country. It also marks the 10th anniversary of the euro, the common currency further knitting together several hundred million Europeans in their economic and financial affairs. It is worth pausing to commemorate this remarkable event, and the effect the euro’s existence has had on the current global crisis.
The euro was launched in January 1999 for a complex set of economic, financial, political, and historical reasons. It was the final icing on the cake of the plan by many post-World War II leaders, driven by the memory of two horrible world wars originating in and consuming Europe in the previous half-century, to forge closer economic and political ties.
Ten years ago, there were real concerns about launching the new currency. Would people give up their old national currencies and use the new euro? Would it maintain its value against the dollar? (Launched at $1.18, it plunged to almost $0.80 early on, then rose, peaking at nearly $1.60 in 2007-2008, before falling back to around $1.30.)
When a group of individual currencies is replaced by a single currency, as the Deutsche mark, French franc, Italian lira, Spanish peseta, and others were by the euro, there are two primary benefits: lower transaction costs and greater transparency.