How the euro became the “second most used currency in the world” 20 years after its introduction

Clémentine Gallès, Chief Economist of Societe Generale Private Banking, from Toulouse – she studied at the University of Toulouse and then defended her thesis at the Toulouse School of Economics – is an expert in monetary policy. Although Croatia will become the twentieth member of the monetary union in 2023, it has a positive but still imperfect assessment of the euro’s two-decade run since its entry into force on January 1, 2001.

Has the euro lived up to the expectations of Europeans twenty years ago?

On the whole, yes, in the sense that the euro has completely replaced national currencies. It facilitated and cheapened the movement of people, goods or financial assets, the concept of exchange rate no longer exists for residents of the euro zone. A survey carried out regularly by the Commission, Eurobarometer, shows strong public opinion support: 77% of Europeans and 81% of French believe that the euro is good for the Union.

I am pleased to welcome Croatia as the 20th member of the Eurozone! I commend the Croatian Central Bank @HNB_HR and to Governor Boris Vujčić on all the hard work done to prepare for the adoption of the euro. It’s a great start to 2023. pic.twitter.com/v6MHSpnJPZ

— Christine Lagarde (@Lagarde) January 1, 2023

Has its implementation had a positive effect on consumer prices?

The European Central Bank has set itself the goal of keeping inflation around 2%, and it has actually achieved that goal, except for recent periods. Inflation levels have been among the weakest among countries at a very fast rate, and were very moderate until last year. At the exchange rate level, the euro has proven to be relatively stable against major currencies.

The Euro was criticized in France in 2001 for the “waltz” of labels…

This was true for certain prices that households are sensitive to on a daily basis, we think of the baguette: there was a slight increase. But in general, there was no exaggerated growth, even if temporary, for all goods and services.

Also read:
Croatia’s membership, future enlargements… how long will the euro continue to conquer the continent?

Has the introduction of the euro brought the economies of the member countries closer together and strengthened their trade?

It’s a little hard to understand, we don’t know what the situation would be like without the euro, and 21 is still young for a currency. But the ECB’s study found that trade growth, thanks to the euro, was not that significant. Moreover, convergence among economies is weak, with rich countries remaining so, and those suffering the most.

Has the Euro established itself as a strong currency outside the Union?

It is the second most used currency internationally after the dollar for trade or financial markets. This position of the euro in trade is a good indication of its strength. But after a significant surge when it was launched, in 2012, after the Greek debt crisis, the use of the euro returned to the level that prevailed when it was introduced, around 20% of world trade.

The European economy has faced several crises over the past two decades. Did they strengthen or weaken its currency?

Indeed, the euro has been shaken enough: the 2008 financial crisis, the 2012 eurozone debt crisis, Covid-19, today the war in Ukraine and energy tensions. The debt crisis of the Eurozone was undoubtedly the most severe, it weakened the monetary union as a whole and exposed various shortcomings: the lack of budgetary union – we still have concrete national budgetary policies – and the union of financial markets.

But yes, the crises have strengthened the euro and continue to do so, as has the collective budget support put in place after Covid-19, but there is still a long way to go. The current situation in the Eurozone, with inflation rates recently averaging over 10%, is a new testing phase for the single currency.

@GallesClem on Twitter

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