Euro marks 20th birthday with plenty of uncertainty ahead
On January 1, 1999, the euro came into existence. Twenty years on, there are plenty of questions about where to go from here, but having survived the fire of the financial crisis, the single currency’s popularity stands at an all-time high.
The eurozone has expanded from its initial bloc of 11 countries to embrace another eight and 340 million people now using the euro as their currency.
While much remains to be done, the bloc has come a long way from the dark days of the financial crisis when many pundits were predicting its demise and the so-called ‘PIIGS’ economies of Portugal, Italy, Ireland, Greece and Spain.
The 19 countries of the euro area now have a combined output of €11.2trn.
The euro area may have been slow to respond to the financial crisis – it took until European Central Bank Governor Mario Draghi pledged in July 2012 “to do whatever it takes to preserve the euro”, but it and the single currency survived.
This year will see plenty of challenges to the euro, from Italy’s rules-busting budget deficit to French President Emmanuel Macron’s spending splurge to get the ‘gilets jaunes’ off the streets of Paris.
It will also see Mr Draghi’s exit from the European Central Bank as his term ends just as the bank contemplates a rise in interest rates that few in financial markets believe it will deliver this year as it has planned.
Plans for a banking union and capital market union remain largely unfulfilled and Germany and others in Northern Europe remain averse to financing deficits among southern member states.
Over the longer term, the EU will need to adapt to a reduced economic heft, according to a report by the European Parliamentary Research Service.
“The EU-27 will likely become a ‘small open economy’ whose relative weight in the global economy will, by around 2035, be similar to that of Japan at the start of the century,” the report concluded.