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1.2.3.2.1. How was the euro introduced?

The euro was introduced with a double "big bang", i.e. two steps on two precise dates.

• First, on 1 January 1999, the euro became the official currency of the 11 countries of the EMU (Greece joined them on 1 January 2001) with the notes and coins national currencies becoming  the visible monetary form of the euro.  The relation between these became fixed and determined by the official fixed rates.

Rates of exchange with repect to the euro.
© Promeuro - Illustration 1.2.3.b 

• Secondly, on 1January 2002, beginning of Phase III-C : introductions of the euro notes and coins, which circulated for a few weeks in parallel with the national notes and coins. The euro thus becomes a parallel fiduciary money*, whilst for scriptural transactions, also called book money* the euro becomes obligatory.  The treaty foresaw a complete replacement of the national notes and coins by 30 June 2002, at the latest.  In fact, this date was put forward to 28 February for the majority of countries, in Germany (officially 31 December 2001 - in practice up to 28 February 2002), the Netherlands up to 27 January, Ireland up to 9 February and  France up to 17 February.

 
Jacques Santer  

 " Within a period of 12 months, maximum, after the decision to launch the monetary union, all preparations for transition ought to be completed.  On 1 January 1999 at the latest, the Union will have a currency in its own right with a single monetary policy, operated in the European currency.  Nevertheless, as national currencies will continue to be used at the level of retail commerce, the banks will install systems which will permit the combination of access to financial markets in European currency with accounts in the national currency for their clients."
 
Jacques Santer r*, président de l'UE.

1.2.3.2.2. What particular mechanisms prevailed during the transitional period?

The transition period took place between 1 January 1999 and 1 January 20002.   The length of this period had been fixed at the request of the central banks, in order to enable them to produce and put into circulation a considerable volume of notes and coins in euros.  During three years, the euro is the official currency of first eleven, then twelve, countries of the "Euro Zone".  The parity between the currencies of the national currencies of the countries of the EMU and the euro was fixed "irrevocably" for each participating country (cf. illustration 1.2.3. b).  It, therefore, became unimportant in which currency holdings were denoted.  During this period, public debts were denoted in euros and stock market quotations where changed into euros.  No one could be either obliged or prohibited from using the euro: the principle of "neither obligation nor prohibition".  Banks and businesses began double bookkeeping with a double (triple, if one included unit weight prices) display of prices.

In applying the principle of "neither obligation nor prohibition" each individual is free to convert his account to euros, starting on 1 January 1999.  In fact, relatively few people took advantage of this possibility: by mid-2001, less than 10% had made the decision to change their accounts to euros.  The balances in the accounts, as well as salaries, pensions, etc. were thus automatically converted to euros at the end of 2001.  The debts and claims expressed in national currencies were converted into euros, without affecting other contractual arrangements, specifically the rates of interest.

In June 2002 at the latest, according to the Treaty, and in practice by March 2002, the euro had become the unique means of payment*, with liberation value in all of the EMU countries.  The national currencies of the participating countries had, as a consequence, completely disappeared.

The remaining national coins and notes ceased to become legal tender*, could be returned to commercial banks or central banks* up to a date set by national timetables for the transition.  Up until 30 March 2002, all central banks* would exchange for euros, without charge, notes of any country member of the EMU.

The timetable for the imlementation of the euro is posted on the "Europa" website of the European Commission: europa.eu.int

1.2.3.2.3. At what rates are national currencies converted into euros?

It is a case of conversion rates and not rates of exchange.  In fact, beginning in 1999, the various monies of the countries in the EMU and the euro all form part of a single currency.  There is not an exchange rate in the sense that the rate can no longer vary.  For this reason it is correct to speak of a "rate of conversion". Because of the absence of risk, the rates for buying and selling are identical and the conversion can take place without imposing a commission for the "exchange".

The rates of conversion for the national currencies into euros were fixed on 1 January 1999. Before that date, the only rate of exchange known with certainty was that for the ECU, which was replaced by the euro at the rate of 1 ECU for 1 euro.  The method of fixation of the rates for national currencies was not disclosed in advance, but everything indicated that the method would be that adopted for exchanges for one European account unit* for another.  The principle adopted was one of maintaining the exterior value of the national monies.  In transposing the exchange rates, as of 31 December 1998, for national currencies into ECU into a rate for conversion into euros, it was possible to ensure that the relation between the currencies and foreign currencies remained unaltered.  That explains the strange rates of conversion between national currencies and the euro.

The legal framework for the euro stated that the conversion should be implemented to an accuracy of six significant figures, in order to prevent rounding to the advantage of one or the other of the contracting parties.  Moreover the conversion should take place from the national currency into euros, and not the inverse. All conversion between national currencies should pass via the official rates of exchange for the euro.

1.2.3.2.4. How were currencies converted into euros (and vice versa) for financial and contractual transactions?

These questions were settled in 4th and 5th articles of Regulation number 1103/97 of the Council of 7 June 1997.

First, the necessary starting point was the official conversion rate expressing the value of a euro in the national currency of each member state (1 euro = X in exchangeable national currency*  and not the inverse).  These conversion rates were made, as a requirement, from six significant figures (number of decimal places = 6 - number of digits for the whole number), for example 1 euro = 40.3399 LUF or four (6 - 2) decimal places.

It follows, therefore, an amount expressed in national currency needs to be divided by the conversion rate in order to obtain the equivalent in euros.  To convert from euros to national currency it is necessary to multiply by the conversion rate.  It should be noted that when one converts the Irish pound into euros, the numerical value expressed in euros is greater than in the national currency.

All sums of money to be converted from one national currency to another ought to be converted first into euros.  This sum cannot be rounded to less than three decimal places, then reconverted into national currency.  No other form of calculation is permitted, unless it produces the same results

1.2.3.2.5. How are amounts converted into euros rounded?

Amounts in euros are always expressed in figures to two decimal places (i.e. in cents).  During the conversion a digit of 0 to 4 in the third decimal place is rounded down and a digit of 5 to 9 is rounded up.

Examples :
1 000 FRF represents 152.449 euros, which, when rounded, is 152.45 euros ;
500 LUF represents 12.3947 euros, which, when rounded, is 12.39 euros.

1.2.3.2.6. How can we understand the new prices?

During the preparatory period and during the period of parallel circulation of the euro and national currencies, shop prices were displayed in both the euro and the national currency.  Similarly salary slips, pension statements and bank statements were printed both in the euro and the national currency.  Some businesses began as early as 2001 printing salary slips in both currencies to familiarise their employees with the value of the euro.

Businesses and banks distributed simple calculators or conversion tables which facilitated the conversion of values in the single currency to the former national currency, and vice versa.  For the period of the double circulation there were even calculators with a "duo-change" facility - which indicated the change to be given back in both national currency and euros.  Before becoming completely familiar with the euro, Europeans found themselves in a position at home similar to that of a tourist abroad, needing to convert amounts into their own national currency in order to be able to "understand" them.  After a period  of adaptation, and with prices, salaries, taxes, bank statements, pensions, etc. expressed in euros, the majority of Europeans got used to "thinking in euros" and no longer need their former currency for the purpose of reference.  The adaptation period was short for the majority of European citizens.

1.2.3.2.7. What happens to contracts in ecu or national currencies?

The transition to the euro requires no intervention as a result of the ruling on the continuity of contracts.  The amounts in national currencies or in ecus are automatically (and without any intervention) considered converted into euros at the fixed official rate of rates of conversion.  The rates of interest which form part of these contracts remain unchanged, as do other clauses in the contract.  The single change of the denomination of the money for the contract requires no other modification of the contract, unless there is a specific agreement between the parties.  The agreement regarding the legal status of the euro thus guarantees the principle of continuity of contracts, with the term "contract" covering written, oral or tacit contracts.  For example, a stamp labelled in national currency and bought in national currency and valid for a certain type of postal service will remain valid for that service after the introduction of the euro, for as long as the tariff remains unaltered.  It should be noted that certain countries have made arrangement to ease the conversion of the capital of a company, rounding the result to the nearest unity.  It should not, however, be forgotten that such arrangements are valid only for documents signed before 31 December 2001.  Any contract or official document expressed in national currency after this date is considered unlawful, because it has been contracted in a money which is no longer legal tender

1.2.3.2.8. Have our monetary assets been depreciated?

The change of monetary unit is not synonymous with inflation* or the plundering of the assets of savers, retired people, or those living from an annuity.  The "relative value" of our monetary assets remains identical after the introduction of the euro as it was before.  The single currency is managed within a rigorous institutional framework, whose objective is price stability, from which the stability of purchasing power is derived.  The independence of the ESCB is a guarantee for the respect of this objective, and shelters the euro from inflationist tendancies.  Moreover, only countries whose economies have sufficiently converged will participate in the EMU.

The monetary union is not a new monetary reform. Monetary assets - just as for credits - are simply converted to euros at the same rate as the price of goods.  Of course, nominal values of stocks and bonds will continue to vary according to market forces.

1.2.3.2.9. What has been the cost of transition to a single currency and who has supported this cost?

The cost of the transition to the euro is difficult to express in figures.  Citizens, businesses and above all banks ought to have put in a considerable effort, during a limited period of time.  Estimations vary considerably, according to the methods used and the methodology used by the bank.  The figures which have been submitted are difficult to interpret.  Some include costs related to other events occurring at the same time as the euro transition (the computer adaptation to the problems associated with the year 2000) as well as lost earning opportunities (loss of exchange commissions).  It is foreseen that citizens will not directly have a cost to support: the exchange of local currencies* into euros ought to take place without charging a fee - according to the principle proposed by the EC, that client should not be charged for obligatory transactions.

It is also important to consider that, beyond the immediate costs, there are benefits which the European citizen gains from the single currency, and will continue to gain in the future.  These efforts are less painful if the adjustments* - computer systems, for example - have been implemented with advance planning.

Show all/Hide all

1.2.3.2.1. How was the euro introduced?

The euro was introduced with a double "big bang", i.e. two steps on two precise dates.

• First, on 1 January 1999, the euro became the official currency of the 11 countries of the EMU (Greece joined them on 1 January 2001) with the notes and coins national currencies becoming  the visible monetary form of the euro.  The relation between these became fixed and determined by the official fixed rates.

Rates of exchange with repect to the euro.
© Promeuro - Illustration 1.2.3.b 

• Secondly, on 1January 2002, beginning of Phase III-C : introductions of the euro notes and coins, which circulated for a few weeks in parallel with the national notes and coins. The euro thus becomes a parallel fiduciary money*, whilst for scriptural transactions, also called book money* the euro becomes obligatory.  The treaty foresaw a complete replacement of the national notes and coins by 30 June 2002, at the latest.  In fact, this date was put forward to 28 February for the majority of countries, in Germany (officially 31 December 2001 - in practice up to 28 February 2002), the Netherlands up to 27 January, Ireland up to 9 February and  France up to 17 February.

 
Jacques Santer  

 " Within a period of 12 months, maximum, after the decision to launch the monetary union, all preparations for transition ought to be completed.  On 1 January 1999 at the latest, the Union will have a currency in its own right with a single monetary policy, operated in the European currency.  Nevertheless, as national currencies will continue to be used at the level of retail commerce, the banks will install systems which will permit the combination of access to financial markets in European currency with accounts in the national currency for their clients."
 
Jacques Santer r*, président de l'UE.

1.2.3.2.2. What particular mechanisms prevailed during the transitional period?

The transition period took place between 1 January 1999 and 1 January 20002.   The length of this period had been fixed at the request of the central banks, in order to enable them to produce and put into circulation a considerable volume of notes and coins in euros.  During three years, the euro is the official currency of first eleven, then twelve, countries of the "Euro Zone".  The parity between the currencies of the national currencies of the countries of the EMU and the euro was fixed "irrevocably" for each participating country (cf. illustration 1.2.3. b).  It, therefore, became unimportant in which currency holdings were denoted.  During this period, public debts were denoted in euros and stock market quotations where changed into euros.  No one could be either obliged or prohibited from using the euro: the principle of "neither obligation nor prohibition".  Banks and businesses began double bookkeeping with a double (triple, if one included unit weight prices) display of prices.

In applying the principle of "neither obligation nor prohibition" each individual is free to convert his account to euros, starting on 1 January 1999.  In fact, relatively few people took advantage of this possibility: by mid-2001, less than 10% had made the decision to change their accounts to euros.  The balances in the accounts, as well as salaries, pensions, etc. were thus automatically converted to euros at the end of 2001.  The debts and claims expressed in national currencies were converted into euros, without affecting other contractual arrangements, specifically the rates of interest.

In June 2002 at the latest, according to the Treaty, and in practice by March 2002, the euro had become the unique means of payment*, with liberation value in all of the EMU countries.  The national currencies of the participating countries had, as a consequence, completely disappeared.

The remaining national coins and notes ceased to become legal tender*, could be returned to commercial banks or central banks* up to a date set by national timetables for the transition.  Up until 30 March 2002, all central banks* would exchange for euros, without charge, notes of any country member of the EMU.

The timetable for the imlementation of the euro is posted on the "Europa" website of the European Commission: europa.eu.int

1.2.3.2.3. At what rates are national currencies converted into euros?

It is a case of conversion rates and not rates of exchange.  In fact, beginning in 1999, the various monies of the countries in the EMU and the euro all form part of a single currency.  There is not an exchange rate in the sense that the rate can no longer vary.  For this reason it is correct to speak of a "rate of conversion". Because of the absence of risk, the rates for buying and selling are identical and the conversion can take place without imposing a commission for the "exchange".

The rates of conversion for the national currencies into euros were fixed on 1 January 1999. Before that date, the only rate of exchange known with certainty was that for the ECU, which was replaced by the euro at the rate of 1 ECU for 1 euro.  The method of fixation of the rates for national currencies was not disclosed in advance, but everything indicated that the method would be that adopted for exchanges for one European account unit* for another.  The principle adopted was one of maintaining the exterior value of the national monies.  In transposing the exchange rates, as of 31 December 1998, for national currencies into ECU into a rate for conversion into euros, it was possible to ensure that the relation between the currencies and foreign currencies remained unaltered.  That explains the strange rates of conversion between national currencies and the euro.

The legal framework for the euro stated that the conversion should be implemented to an accuracy of six significant figures, in order to prevent rounding to the advantage of one or the other of the contracting parties.  Moreover the conversion should take place from the national currency into euros, and not the inverse. All conversion between national currencies should pass via the official rates of exchange for the euro.

1.2.3.2.4. How were currencies converted into euros (and vice versa) for financial and contractual transactions?

These questions were settled in 4th and 5th articles of Regulation number 1103/97 of the Council of 7 June 1997.

First, the necessary starting point was the official conversion rate expressing the value of a euro in the national currency of each member state (1 euro = X in exchangeable national currency*  and not the inverse).  These conversion rates were made, as a requirement, from six significant figures (number of decimal places = 6 - number of digits for the whole number), for example 1 euro = 40.3399 LUF or four (6 - 2) decimal places.

It follows, therefore, an amount expressed in national currency needs to be divided by the conversion rate in order to obtain the equivalent in euros.  To convert from euros to national currency it is necessary to multiply by the conversion rate.  It should be noted that when one converts the Irish pound into euros, the numerical value expressed in euros is greater than in the national currency.

All sums of money to be converted from one national currency to another ought to be converted first into euros.  This sum cannot be rounded to less than three decimal places, then reconverted into national currency.  No other form of calculation is permitted, unless it produces the same results

1.2.3.2.5. How are amounts converted into euros rounded?

Amounts in euros are always expressed in figures to two decimal places (i.e. in cents).  During the conversion a digit of 0 to 4 in the third decimal place is rounded down and a digit of 5 to 9 is rounded up.

Examples :
1 000 FRF represents 152.449 euros, which, when rounded, is 152.45 euros ;
500 LUF represents 12.3947 euros, which, when rounded, is 12.39 euros.

1.2.3.2.6. How can we understand the new prices?

During the preparatory period and during the period of parallel circulation of the euro and national currencies, shop prices were displayed in both the euro and the national currency.  Similarly salary slips, pension statements and bank statements were printed both in the euro and the national currency.  Some businesses began as early as 2001 printing salary slips in both currencies to familiarise their employees with the value of the euro.

Businesses and banks distributed simple calculators or conversion tables which facilitated the conversion of values in the single currency to the former national currency, and vice versa.  For the period of the double circulation there were even calculators with a "duo-change" facility - which indicated the change to be given back in both national currency and euros.  Before becoming completely familiar with the euro, Europeans found themselves in a position at home similar to that of a tourist abroad, needing to convert amounts into their own national currency in order to be able to "understand" them.  After a period  of adaptation, and with prices, salaries, taxes, bank statements, pensions, etc. expressed in euros, the majority of Europeans got used to "thinking in euros" and no longer need their former currency for the purpose of reference.  The adaptation period was short for the majority of European citizens.

1.2.3.2.7. What happens to contracts in ecu or national currencies?

The transition to the euro requires no intervention as a result of the ruling on the continuity of contracts.  The amounts in national currencies or in ecus are automatically (and without any intervention) considered converted into euros at the fixed official rate of rates of conversion.  The rates of interest which form part of these contracts remain unchanged, as do other clauses in the contract.  The single change of the denomination of the money for the contract requires no other modification of the contract, unless there is a specific agreement between the parties.  The agreement regarding the legal status of the euro thus guarantees the principle of continuity of contracts, with the term "contract" covering written, oral or tacit contracts.  For example, a stamp labelled in national currency and bought in national currency and valid for a certain type of postal service will remain valid for that service after the introduction of the euro, for as long as the tariff remains unaltered.  It should be noted that certain countries have made arrangement to ease the conversion of the capital of a company, rounding the result to the nearest unity.  It should not, however, be forgotten that such arrangements are valid only for documents signed before 31 December 2001.  Any contract or official document expressed in national currency after this date is considered unlawful, because it has been contracted in a money which is no longer legal tender

1.2.3.2.8. Have our monetary assets been depreciated?

The change of monetary unit is not synonymous with inflation* or the plundering of the assets of savers, retired people, or those living from an annuity.  The "relative value" of our monetary assets remains identical after the introduction of the euro as it was before.  The single currency is managed within a rigorous institutional framework, whose objective is price stability, from which the stability of purchasing power is derived.  The independence of the ESCB is a guarantee for the respect of this objective, and shelters the euro from inflationist tendancies.  Moreover, only countries whose economies have sufficiently converged will participate in the EMU.

The monetary union is not a new monetary reform. Monetary assets - just as for credits - are simply converted to euros at the same rate as the price of goods.  Of course, nominal values of stocks and bonds will continue to vary according to market forces.

1.2.3.2.9. What has been the cost of transition to a single currency and who has supported this cost?

The cost of the transition to the euro is difficult to express in figures.  Citizens, businesses and above all banks ought to have put in a considerable effort, during a limited period of time.  Estimations vary considerably, according to the methods used and the methodology used by the bank.  The figures which have been submitted are difficult to interpret.  Some include costs related to other events occurring at the same time as the euro transition (the computer adaptation to the problems associated with the year 2000) as well as lost earning opportunities (loss of exchange commissions).  It is foreseen that citizens will not directly have a cost to support: the exchange of local currencies* into euros ought to take place without charging a fee - according to the principle proposed by the EC, that client should not be charged for obligatory transactions.

It is also important to consider that, beyond the immediate costs, there are benefits which the European citizen gains from the single currency, and will continue to gain in the future.  These efforts are less painful if the adjustments* - computer systems, for example - have been implemented with advance planning.