European Central Bank - Frankfurt, Germany

Prior to 2002, if you trekked through Europe, your wallet may have collected several different kinds of currency. On January 1 2002, 11 member countries of the European Union combined their currencies to form the single currency - Euro.

When the Euro was first introduced in 2002, it was meant to unify Europe. These days the talk is about a divided Europe - the same Euro is magnifying cultural differences between member states. With the Greek debt crisis worsening and no end in sight, the Euro is being called to question.

History of the European Union and the Euro

After World War II, in 1951, France, Germany, Belgium, Luxembourg, Netherlands and Italy decided to join forces to form a “common market” to simplify trade amongst them. These nations removed duties (taxes on exports and imports), did away with passport for travel within their lands, and enacted several other policies, which led to prosperity of member nations. The success of the model attracted other nations to the single market system and by 1995, 15 nations had joined together to form the European Union (EU).

By the early 1990s, the member nations figured that a common currency could speed the integration of the EU and thus the Euro was born. Members were invited to adopt the Euro as their official currency and on Jan 1, 1999, 11 of the 15 countries officially accepted the Euro. Coins and notes were made available by 2002. The European Central Bank (ECB), was made responsible for the monetary policies -- such as controlling the supply of money, and fixing the rate of interest. 

By the turn of the century, with the collapse of the communist regimes in the East, more nations began queuing up to join the EU. Countries were admitted to the club when they met the guidelines for membership. The present strength of the EU is 27 with 17 countries using the Euro as their official currency.

The pros and cons

The Euro was meant to increase economic co-operation and trade between EU members. Economists have pointed to several issues -- one of which is that for a common currency to work, it is essential that all member countries have similar economies, and cultures.

Further every country needs to strike the right balance between revenue and expenses. Think of it like a father who has 5 kids to whom he provides an annual amount of $1000 (monetary policy). If two of the sons are frugal (savers) and the other three are wasters, there will be a time when the spenders would have spent their share of $200 each and will be taking away from the savers.

In the EU, each country has its own way of handling its finances. So far, stronger economies such as Germany and France have helped Euro interest rates stay very low. Other Euro countries such as Greece, have been borrowing money at these low interest rates. Eventually the Greek borrowing went out of control and the country is heading for a default (inability to pay back its loans). As you can imagine, taxpayers in Germany and France are rising up in protest because they are affected by an unstable Euro. 

The question uppermost in everybody’s mind is what will happen to the Euro and the EU? Should and will Germany and France carry the rest of the EU on their shoulders? What do you think? Let us know your views.