The euro

Der euro

The official currency of the European Union is the Euro.  The currency was officially introduced in electronic form on January 1, 1998.  All business transactions read in both Euros and the local currency, and every Euro country's currency was fixed to the Euro.  Hard currency reached the hands of Europeans four years later on January 1, 2002.  The switch from twelve independent currencies to only one occurred virtually problem free and with great success.

The switch to the Euro occurred in twelve of the fifteen member countries of the European Union:  Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, and Spain.  The three countries who abstained from the Euro -- the United Kingdom, Sweden, and Denmark -- chose to remain independent mostly due to fears about potential Euro instability and the independent strength of their own currencies. 

Until the introduction of the Euro, the Deutsche Mark had been the world's second most prominent currency in international trading behind the US dollar.  For this reason, much of the Euro's structure and backing is based upon the principles of the Deutsche Mark.  The European Central Bank (ECB) resembles the Bundesbank in a number of ways and is even located in Frankfurt. The ECB's most important carry-over from Germany's Bundesbank are the three principles, with which to manage national economies:  limit inflation, practice monetary prudence, and remain politically independent.

The ECB enjoys total independence in its work and cannot accept instructions from any other entity.  The ECB does, however, work in close collaboration with the EU's fifteen national central banks, or the European System of Central Banks (ESCB).  It is important to remember that although the ECB works in conjunction with all fifteen member states, only twelve of them use the Euro.  

Three independent bodies run the ECB:

1. Governing Body:  The Governing Body consist of all the members of the Executive Board and the governors of the  NCBs of the twelve member states who use the Euro.

2. Executive Board:  The Executive Board consists of the ECB President, Vice President and four other members appointed by the member states for a non-renewable five-year term.

3. General Council:  The General Council consists of the President, Vice President, and representatives of the fifteen member states of the EU.  

The Euro is now the second most traded currency on the international markets behind the US dollar.  Although the EU's economy is approximately the same size as the US economy, the Euro will probably not surpass the dollar in the near future.  In order for that to occur, the EU would have to experience a significant amount of economic growth combined with low inflation.  Additionally, since most of the EU's international trade occurs within the EU's borders, international trade must be directed increasingly outside of the EU.

Switzerland and the Euro

Switzerland remains officially both politically and economically independent of the EU.  Sitting at the center of Western Europe, however, Switzerland cannot remain completely independent of its neighboring countries.  The country has always been a major trading partner of the other European countries as well as an international banking center.  The EU accounts for 55% of all Swiss exports and 73% of all its imports.  For this economic reason, Switzerland continues to integrate into the EU without actually becoming a member.

Switzerland is a member of the European Free Trade Association, and the Swiss Franc tends to float in almost direct relation to the Euro.   In May 2000, the Swiss people approved a set of trade agreements with the EU, which create a special trade status between the EU and Switzerland:

1. Free Movement of Persons 

2. Land Transport:   More freight traffic can travel through Switzerland.

3. Civil Aviation:  Switzerland and the EU have better access to each other's airports.

4. Elimination of "Technical Barriers to Trade"

5. Public Procurement:  Free competition exists between EU and Swiss firms for the construction of civil projects.

6. Scientific Research:  Swiss teams may work the EU teams in research programs.

7. Trade in Agricultural Products:  Customs duties are reduced.

There is very little chance of Switzerland abandoning its traditionally strong Franc and its political independence to join the EU, but the country continues to integrate economically as a substantial economic partner.