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Public finances in Member States in 2005

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Public finances in Member States in 2005

Outline of the Community (European Union) legislation about Public finances in Member States in 2005

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Public finances in Member States in 2005

Document or Iniciative

Communication from the Commission to the Council and the European Parliament of 1 June 2005: “Public finances in EMU – 2005” [COM(2005) 231 final – Not published in the Official Journal].

Summary

The communication summarises the main policy messages of the report entitled ” Public finances in EMU – 2005 “, the latest of the reports the Commission has drawn up each year since 2000. The Commission notes that there are still budgetary imbalances in some countries (Germany, Cyprus, France, Greece, Hungary, Italy, Malta, Poland, Slovakia and United Kingdom), although the general government deficit in the euro area has improved marginally. According to forecasts, the euro-area and EU deficits should remain roughly stable in 2005 and 2006.

Ten Member States face excessive deficit procedures

The communication takes account of the reform of the stability and growth pact (SGP). Since the summer of 2004, ten EU countries have been subject to the excessive deficit procedure (EDP):

  • France and Germany. Following the Court of Justice ruling *, both countries have taken measures that could result in the excessive deficit being corrected in 2005. At this stage no further action under the EDP is necessary.
  • Netherlands. The Netherlands reduced their excessive deficit to 2.5 % of gross domestic product (GDP) in 2004. The Commission therefore proposed in May 2005 to abrogate the decision on the existence of an excessive deficit.
  • Cyprus, Hungary, Malta, Poland, Czech Republic and Slovakia. The Council decided that an excessive deficit existed in each of these countries outside the euro area. In order to remedy the situation, it issued recommendations to these countries. All of them, apart from Hungary, have taken effective measures in response to the recommendation.
  • Greece. The Council has issued a notice to Greece, the last step before sanctions. Greece has until 2006 to correct the excessive deficit, which is of an unprecedented magnitude (5.2 % and 6.1 % of GDP in 2003 and 2004 respectively).

The Commission is placing emphasis on improving statistical governance in the budgetary field following the revision in the Greek government accounts in 2004. In a communication on a European governance strategy for fiscal statistics [COM(2004) 832 final], the Commission put forward three lines of action:

  • building up the legislative framework;
  • developing the Commission’s operational capacity;
  • defining European standards on the independence of statistical institutes.

Reform of the stability and growth pact: analysing budgetary data

The communication describes the main stages of the reform of the stability and growth pact. The debate has led to changes in the basic regulations on the surveillance of budgetary positions and the implementation of the excessive deficit procedure.

The Commission notes that the report aims to improve the understanding of public finance issues in the EU and to upgrade budgetary surveillance. For 2005, the report presents an analysis of the discrepancy between budgetary plans presented in stability and convergence programmes and the actual results achieved, an analysis of the determinants of debt dynamics and an analysis of the long-term sustainability of public finances.

These analyses enable the Commission to:

  • achieve effective budgetary planning. The Commission has collected data enabling it to compare actual budgetary developments in the Member States with initial objectives. In this way it has been able to see how its assessment of stability and convergence programmes has evolved over the years. It highlights the importance of finding ways to avoid spending slippages and more effectively plan expenditure patterns in a manner that increases their quality – also to better match the new Lisbon priorities.
  • understand the determinants of debt dynamics. The Commission focuses on “stock-flow adjustment”, which captures the residual discrepancy between the change in the outstanding debt stock and the general government deficit, as defined in the Protocol to the Maastricht Treaty. The usual analysis focuses on deficits and nominal growth, while much less attention has been given to the stock-flow adjustment. However, this component conveys relevant information about the evolution of government assets and liabilities and about the discrepancy between deficits. The report shows that the stock-flow adjustment in past years has, on average, been positive (consequently adding to the build-up of debt) and that in some countries it is partly associated with cash deficits being systematically higher than “Maastricht deficits”.
  • increase focus on the long-term sustainability of public finances. Public finances must be sustainable, despite ageing populations and the costs involved in the European social model. The 2005 report shows that the Member States must consolidate their budgets in order to achieve a sustainable position. The reform of the stability and growth pact is helping to ensure the long-term sustainability of public finances. The exchange of information among Member States and with the Commission on national expenditure will increase transparency and lead to a better assessment of the long-term sustainability of public finances.

Structural reforms and budgetary objectives

The Commission gives high priority to economic reforms that increase growth and employment. The report reviews and discusses the link between the implementation of structural reforms and budgets in implementing the EU framework for fiscal policy. This important issue has been under-researched.

Reforms can contain the growth of certain types of government expenditure, such as reforms of pension or health care systems. Reforms aimed at improving potential output and growth may also have indirect positive effects. However, numerical rules to limit excessive deficits may discourage reforms. The trade-off between reforms and budgetary objectives can be explained by the short-term costs of reforms and by the fact that reforms can be costly to particular groups in society, so that tax cuts or other government transfers may be needed.

The report looks at labour and product market reforms and pension reforms. The analysis focuses on two issues: the short-term impact of reforms on budgets, and the possibility that fiscal consolidation measures prevent reforms. According to the data, there is no strong evidence to show that reforms are less frequent in times of budgetary consolidation. However, in the aftermath of reforms there is, in general, a slight deterioration in budget balances. The Commission believes that reforms should be considered with caution in the implementation of the stability and growth pact (SGP). The 2005 SGP reform package includes provisions aimed at ensuring that the budgetary objectives of the EU fiscal framework do not clash with structural reforms that may contribute to sound public finances and increased growth.

New Member States: fiscal challenges

The ten Member States that joined the EU in 2004 are continuing their economic integration by catching up in terms of their income levels and by looking forward to adopting the euro. Fiscal policy can make a key contribution in this process via efficient and sustainable tax and expenditure policies and by supporting stable development of the economy. In the short term, some of the new Member States may need to make difficult choices, for example on higher spending in certain areas such as infrastructure, training or R&D, which may make it even harder to contain budget deficits. The report discusses the main challenges facing the new Member States in conducting their fiscal policy, such as the problem of an ageing population.

The new Member States are in a position to finance some of their needs thanks to their high potential growth and, in some cases, their low public debt. However, the stock of contingent liabilities is relatively high in many of these countries, and this creates the risk of sudden upswings in debt levels if government payments related to guarantees materialise. The Commission highlights the importance of taking advantage of periods of strong growth to achieve budgetary improvements. In this way, Member States can ensure adequate headroom to stabilise the economy during a downturn.

The Commission believes that there is scope for policy-makers in the new Member States to pursue their growth and stability objectives while ensuring proper management of public finances. Efforts must be made to:

  • restructure existing expenditure programmes;
  • enhance tax bases in order to strengthen public finances and foster conditions conducive to growth;
  • enhance the transparency of budgetary procedures;
  • improve risk management in the private sector via well-designed surveillance.

Although the framework for economic and budgetary surveillance in EMU has provided positive results, analyses show that Member States need to do more if they are to deliver the expected results. The reform of the SGP and the Lisbon strategy have responded to the need to match procedural rules with the economic reality and needs of the Member States. They will be tested in the years to come. The way the new SGP framework will be implemented from the start will be crucial for its future credibility. The Commission encourages the Member States to pursue this ambitious strategy by enhancing the quality and ensuring the sustainability of their public finances.

Key terms used in the act
  • Case C-27/04: The debate surrounding the stability and growth pact gathered momentum following a ruling on 13 July 2004 by the Court of Justice of the European Communities (CJEC) concerning the excessive deficit procedures initiated against Germany and France. In November 2003 the Commission sent the Council recommendations for speeding up the excessive deficit procedure in both cases. However, the Council did not act on those recommendations and suspended the excessive deficit procedures. It argued that its conclusions were of a political nature. The Court ruled that the Commission’s complaint, namely that the Council had not adopted the formal instruments contained in the Commission recommendations, was inadmissible and that the Council conclusions of 25 November 2003 adopted in respect of France and Germany were annulled as regards suspension of the excessive deficit procedure.

Stability and growth pact and economic policy coordination

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Stability and growth pact and economic policy coordination

Outline of the Community (European Union) legislation about Stability and growth pact and economic policy coordination

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Stability and growth pact and economic policy coordination

The Stability and Growth Pact is intended to ensure that Member States maintain budget discipline in order to avoid excessive deficits. It therefore contributes to monetary stability. Member States coordinate their economic policies at European level.

STABILITY AND GROWTH PACT

Implementation of the pact

  • Resolution of the Amsterdam European Council on the stability and growth pact
  • Surveillance of budgetary policies
  • The corrective arm: the excessive deficit procedure
  • Requirements for budgetary frameworks of the Member States

Implementation of the pact

  • A European Economic Recovery Plan
  • Reporting of planned deficits by Member States
  • European financial stabilisation mechanism

ECONOMIC POLICY COORDINATION

Basic provisions

  • Resolution of the European Council on economic policy coordination (1997)
  • Reinforcing economic policy coordination
  • Streamlining of annual economic and employment policy coordination cycles

Council recommendations

  • Broad guidelines for economic policies
  • Broad Economic Policy Guidelines (2008- 2010)
  • Broad economic policy guidelines (2005- 2008)
  • Broad economic policy guidelines 2003-2005
  • Broad economic policy guidelines (2002)
  • Broad economic policy guidelines (2001)
  • Broad economic policy guidelines (2000)
  • Broad economic policy guidelines (1999)
  • Broad economic policy guidelines (1998)
  • Broad economic policy guidelines (1997)
  • Broad economic policy guidelines (1996)

Public finances in Member States

  • Ensuring the effectiveness of the preventive arm of the Stability and Growth Pact: Public Finances in EMU – 2007
  • Long-term sustainability of public finances in the EU
  • Revising the Stability and Growth Pact: Public Finances in EMU 2006
  • Public finances in Member States in 2005
  • Public finances in Member States in 2004

The European economy

  • The European economy: 2007 Review
  • The European economy: 2006 review – strengthening the euro area
  • The European economy: 2004 Review
  • The OECD and the examination of EC economic policies

Declaration on the Euro area

  • 2009 Annual Statement on the Euro Area
  • 2007 Annual Statement on the Euro Area

Public finances in Member States in 2004

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Public finances in Member States in 2004

Outline of the Community (European Union) legislation about Public finances in Member States in 2004

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Public finances in Member States in 2004

Document or Iniciative

Communication from the Commission to the Council and the European Parliament: Public finances in EMU – 2004 [COM(2004)425 final – Not published in the Official Journal].

Summary

The Commission analyses public finances in European and Monetary Union (EMU) in 2004 and emphasises the need to strengthen the economic governance framework in the Union. It notes more frequent use of the excessive deficit procedure and refers to the strains that are a source of uncertainty in implementing the budgetary surveillance framework, notably because of the divergent interpretation of the provisions of the Treaty and the stability and growth pact by the Community institutions. It proposes an improved analysis of budgetary developments. It also stresses that budgetary discipline and economic growth are mutually compatible objectives. It analyses the link between long-term fiscal and growth policies with a view to improving the quality of public finances.

Review of the current situation

Slower growth is contributing to budget deficits throughout the European Union (EU). Enlargement of the Union in 2004 led to growing disparities in the budgetary performances of Member States. The most significant deficits are those of Germany and France. Given their size, both countries affect the overall outcome for the euro area. The Commission is concerned about the public finance situation in Italy given its high debt-to-GDP ratio but also about the deterioration in actual balances in several countries outside the euro area, including Poland and the United Kingdom. However, it notes the soundness of public finances in Belgium, Spain, Finland, Ireland and Luxembourg. Outside the euro area, Denmark, Estonia and Sweden maintained surpluses throughout the cyclical slowdown.

The last two years have seen frequent use of the excessive deficit procedure. In 2003 Germany, France and Portugal were in an excessive deficit position. In the case of Germany and France, the probability of bringing the deficits below 3 % of GDP in 2004 was very low in the light of the draft budgets submitted for 2003. The Commission therefore moved forward with the excessive deficit procedure with the aim of urging these two countries to correct their deficits at least by 2005. In 2004 the Commission also started the excessive deficit procedure for Greece, the Netherlands and the United Kingdom, which registered deficits above 3 % of GDP in 2003. On the basis of its forecasts, the Commission recommended that an “early warning” be sent to Italy given the risk that it would breach the 3 % reference value in 2004. The procedure was also started for several new Member States following their accession to the EU. Recommendations were addressed to them with a view to helping them pursue a credible mulitiannual adjustment path.

In the immediate future, in spite of an improving growth outlook, the Commission considers that budgetary prospects for 2004 and 2005 are not very promising and that achieving sound public finances will take time. The deficit in Germany and France is projected by the Commission to remain above 3 % of GDP in 2004. The two Member States are committed to bringing down the deficit to below 3 % of GDP in 2005. Greece, Italy, the Netherlands and Portugal could also see their deficits breach the 3 % threshold if no corrective measures are taken. The budgetary situation in most of the new Member States is expected to improve over the next two years.
Unfortunately, a close-to-balance position will not be reached by most Member States, including Germany, France, Portugal and the United Kingdom, by 2007 (0.7 % of GDP for the euro area). These countries do not have an adequate safety margin to prevent a breach of the 3 %- of-GDP reference value in the event of adverse economic conditions. The Commission considers that the medium-term objectives of some Member States are based on overly optimistic growth assumptions.

The poor implementation record for the stability and convergence programmes is hampering achievement of the Lisbon objectives for making the EU the most competitive and most dynamic economy in the world. It is vital that Member States reach budgetary positions which ensure that the automatic stabilisers work freely and mitigate the impact of population ageing on the sustainability of public finances. As economic conditions improve, efforts will be needed to improve the underlying budgetary positions: the difficulties experienced by certain Member States in complying with the Treaty requirements in 2002 and 2003 reflect the fact that they did not carry out enough fiscal adjustment during the good economic times in 1999 and 2000.

Overcoming current difficulties

The Commission notes tensions in the implementation of the procedures laid down in the Treaty and the stability and growth pact (SGP) as regards budgetary surveillance, notably on account of the divergent application of the SGP by the Community institutions. In February 2002, for instance, the Commission recommended that the Council address an “early warning” to Germany and Portugal. The Council did not follow the Commission’s proposals on account of the commitments made by those countries. Similarly, the Council did not follow in 2003 the Commission’s recommendations regarding Germany and France which extended by one year the deadline for correcting the excessive deficit situation and which entailed triggering the following stages in the procedure.

The Commission has announced a strategy aimed at seeking legal clarity on the provisions of the Treaty and the SGP, pursuing budgetary surveillance and strengthening economic governance. Accordingly, at the end of January 2004 it asked the European Court of Justice to annul the decisions taken by the Council and the conclusions adopted at its November meeting. The Commission is pursuing budgetary surveillance in accordance with the provisions of the Treaty and the SGP. This involves assessing the 2003 updates of the stability and convergence programmes and preparing draft opinions for the Council. It is updating the broad economic policy guidelines (BEPGs), including the country-specific recommendations for certain Member States.

The Commission considers that the temporary slippages affecting budgetary positions must be identified more quickly. The Report on Public Finances in EMU – 2004 highlights four areas where progress has been made in analysing budgetary developments:

  • the role of one-off measures. “One-off” measures taken by governments are becoming a frequent and sizeable feature of budgetary policies in the EU. In the Commission’s view, it is important to take account of such measures and the reasons behind them in the budgetary surveillance process. It would like to see greater transparency of budget measures and better reporting of them by Member States, including in the stability and growth programmes;
  • the use of cyclically adjusted budget balances. At present, a common methodology which provides figures for cyclically adjusted budget balances (CABs) is used to disentangle changes in the budget which reflect the economic cycle from those which do not, the latter reflecting measures decided by policymakers. The Commission proposes excluding the component of the change attributable to unexpected changes in potential growth in order to correct the fiscal adjustment measures made at the level of Member States;
  • the assessment of the long-term sustainability of public finances. Budgetary surveillance includes an assessment of the long-term sustainability of public finances on the basis of the updated stability and convergence programmes. The Commission is stepping up the quantitative analysis of the results obtained, thereby giving the assessment a higher information value. It notes that the risks to long-term sustainability are most serious in five countries (Germany, Belgium, France, Greece and Italy) and that two countries (Netherlands and United Kingdom) face medium-term difficulties. Spain and Portugal envisage difficulties over the long-term projections for pension expenditures. Six countries (Austria, Denmark, Finland, Italy, Luxembourg and Sweden) seem to be well placed to meet the costs of an ageing society on the basis of current policies;
  • the consideration of contingent liabilities. To obtain a comprehensive picture of the sustainability of public finances, liabilities other than those included in the Maastricht definition of gross debt should be considered. “Contingent liabilities” correspond to government obligations that materialise only when particular events occur, and the stock of such liabilities is relatively high in the new Member States. Given the differing national situations and trends in the EU, the Commission considers that improved disclosure and monitoring of contingent liabilities would help to strengthen budgetary discipline in the Union.

There have been criticisms that the EU budgetary surveillance framework focuses too much on disciplinary aspects and so is not growth-friendly. The Commission concludes that budgetary discipline does not rule out economic growth. Budgetary discipline and sound public finances contribute to a macroeconomic environment that fosters growth, and the fiscal framework prevents protracted deficits that may have an impact on future income. The Commission’s analysis suggests that the budgetary adjustment in the 1990s induced by the EU fiscal framework resulted in growth of limited duration and magnitude but laid the foundations for better growth prospects. In the absence of the framework, the budget deficits would have crowded out private investment and further reduced potential growth compared with current figures.

The Commission highlights the need to strengthen economic governance in the EU. The framework which applies to the conduct of national fiscal policies and the processes underlying the coordination of economic policies in the EU need to be reassessed. For instance, the Treaty rules on public finances contribute to growth and allow room for proper implementation of the Lisbon strategy. However, the BEPGs could assume a more prominent role in economic policy coordination by providing better fiscal guidance to Member States. The Commission again stresses the importance of improving the interpretation of the fiscal rules in order to take debt developments in Member States into account. Lastly, the Commission recalls the advantages of clarifying the respective roles of the Council and the Commission in implementing the Treaty instruments. It also emphasises the importance of an improved dialogue between all the actors concerned at both national and Community level.

Since 2000 the Commission has produced an annual report on public finances in the European Union. It also adopts communications on the subject.

Related Acts

Commission Communication to the Council and the European Parliament – Public finances in EMU – 2003 [COM(2003)283 final – Not published in the Official Journal]
The European Commission recommends establishing a coherent medium-term strategy to tackle the problem of growing budget imbalances and stimulate growth.

Commission Communication to the Council and the European Parliament – Public finances in EMU – 2002 [COM(2002)209 final – Not published in the Official Journal]
The Commission takes stock of the trend in budgetary policies. There are economic situations to be faced up to while the budgetary framework for the Economic and Monetary Union has to be improved. The Commission underscores the importance of the early warning procedure. To ensure that the stability and growth pact is credible, the Commission believes that its objectives must be attained, while the long-term viability of public finances must be secured. In addition, the quality of public expenditure must be guaranteed and enlargement must be prepared.

Commission Communication to the Council and the European Parliament – Public finances in EMU – 2001 [COM(2001)355 final – Not published in the Official Journal]
This communication analyses the budgetary results of the Member States in 2000 and considers the short- and medium-term prospects. The budgetary policy debate is influenced by a variety of factors, in particular the stability and growth pact objective of attaining a budget position close to balance or in surplus, The importance of a budgetary policy that ensures an appropriate mix of macro-economic policies, the enlargement of the debate to embrace the quality and viability of the public finances, and the need for coordination on budget issues. Lastly the Commission sets out in detail the path to be followed, that is to say closer coordination on budgetary matters.

Changes to the national sides of euro coins

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Changes to the national sides of euro coins

Outline of the Community (European Union) legislation about Changes to the national sides of euro coins

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

Changes to the national sides of euro coins

The Commission Recommendation lays down common rules for changes to the national obverse sides of euro coins. From 2004 onwards, Member States can issue two-euro commemorative coins to celebrate significant events or personalities. The moratorium for normal national sides is maintained until 2008.

Document or Iniciative

Commission Recommendation 2003/734/EC of 29 September 2003 on a common practice for changes to the design of national obverse sides of euro circulation coins.

Summary

This Recommendation, drawn up in close cooperation with the Member States, sets out a common framework for changes to the design of the national sides of euro circulation coins. It covers both normal and commemorative euro coins.

No changes to the national side of euro coins until the end of 2008

The Commission recommends that the national sides of normal euro coins intended for circulation should not be modified before the end of 2008, except in the event of a change in the head of state depicted on a coin.

In a communication of 28 December 2006 entitled “Five years of euro banknotes and coins” [PDF] the Commission reaffirmed the visual coherence of the euro.

Issue of commemorative coins authorised from 2004

On 23 November 1998 the Council decided that “there should be a moratorium on issues of commemorative coins intended for circulation in the early years of the new notes and coins”. The Commission recommended that the issue of commemorative coins should be authorised from 2004. The Council meeting of 8 December 2003 welcomed the Commission Recommendation (see “Related acts”).

From 2004, therefore, Member States may issue commemorative euro coins for circulation and these are legal tender in all the Member States of the euro area. The issue of these coins is subject to certain conditions:

  • Only the national side may be modified.
  • The number of issues is limited to one per Member State per year.
  • The two-euro coin is the sole denomination that may be used for such commemorative issues.
  • The total number of coins put into circulation must not exceed the higher of the following ceilings:

– 0.1 % of the total number of two-euro coins brought into circulation by all the Member States in the euro area; this ceiling may be raised to 2 % if a highly symbolic event is commemorated, in which case the issuer should refrain from launching another similar commemorative coin issue for a period of four years;

– 5.0 % of the total number of two-euro coins brought into circulation by the issuing State.

The design of the national side of commemorative coins is subject to the following conditions in particular:

  • The national side should bear twelve stars surrounding the design.
  • The year must be indicated.

The Commission should be informed about intended changes at least six months before the coins are issued. The Economic and Financial Committee must approve all issues of commemorative circulation coins having an envisaged issuing volume exceeding the 0.1 % referred to above. All relevant information on new designs will be published in the Official Journal of the European Union.

Applying common practice under monetary agreements

The Community has signed monetary agreements with the Principality of Monaco, the Republic of San Marino and the Vatican City State. Under the agreements, those countries are allowed to issue certain quantities of euro coins for circulation. The common practice should therefore also apply to coins issued by those countries.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Commission Recommendation 2003/734/EC 1.1.2004 – OJ L 264, 15.10.2003

Related Acts

Conclusions of the Council meeting on general affairs and external relations on 8 December 2003 [Not published in the Official Journal].
In its conclusions the Council welcomes the Commission’s recommendations, presented on 29 September 2003. The Council agreed to the following:

  • the Member States should not change the national side of their euro circulation coins until the end of 2008, except where the head of state depicted on a coin changes;
  • the moratorium on issuing commemorative circulation coins should be lifted. That moratorium was introduced by the Council meeting on economic and financial affairs (the Ecofin Council) on 23 November 1998. Thus, from 2004 the Member States may issue commemorative two- euro coins subject to certain conditions, such as the issuing volume.

Commemorative coins in chronological order:

Greece – Olympic Games in Athens 2004 [Official Journal C 91 of 15.4.2004].

  • Design: Ancient statue depicting a discobulus about to throw the discus and the five Olympic rings.
  • Issuing volume: a maximum of 50 million coins.

Finland – Enlargement of the European Union by ten new Member States [Official Journal C 243 of 30.9.2004].

  • Design: Stylised pillar with shoots growing upwards.
  • Issuing volume: a maximum of one million coins.

Luxembourg – Grand Duke Henri [Official Journal C 243 of 30.9.2004].

  • Design: Effigy and monogram of Grand Duke Henri.
  • Issuing volume: a maximum of 2.49 million coins.

Republic of San Marino – Bartolomeo Borghesi [Official Journal C 298 of 3.12.2004]

  • Design: Bust of Bartolomeo Borghesi (historian and numismatist).
  • Issuing volume: a maximum of 110 000 coins.

Italy – Fifth decade of the World Food Programme [Official Journal C 313 of 18.12.2004]

  • Design: A globe bearing the inscription “WORLD FOOD PROGRAMME”, from which emerges an ear of maize, an ear of rice and an ear of wheat, representing the world’s basic sources of nourishment.
  • Issuing volume: a maximum of 16 million coins.

Vatican City State – 75th anniversary of the founding of the Vatican City State [Official Journal C 321 of 28.12.2004]

  • Design: A schematic representation of the perimeter walls of the Vatican City with St Peter’s Basilica in the foreground.
  • Issuing volume: a maximum of 100 000 coins.

Luxembourg – 50th birthday of Grand Duke Henri, 5th anniversary of his accession to the throne and 100 years of the death of Grand Duke Adolphe [Official Journal C 11 of 15.1.2005]

  • Design: Effigies of Grand Duke Henri and former Grand Duke Adolphe.
  • Issuing volume: a maximum of 2.8 million coins.

Belgium – Belgium-Luxembourg Economic Union [Official Journal C 61 of 11.3.2005]

  • Design: Effigies of Grand Duke Henri of Luxembourg and King Albert II of Belgium.
  • Issuing volume: a maximum of 6 million coins.

Austria – 50th anniversary of the Austrian State Treaty [Official Journal C 61 of 11.3.2005]

  • Design: A reproduction of the signatures and seals in the Austrian State Treaty.
  • Issuing volume: a maximum of 7 million coins.

Spain – 4th centenary of the first edition of “The Ingenious Nobleman Don Quixote of La Mancha” [Official Journal C 131 of 28.5.2005]

  • Design: Don Quixote holding a lance, with windmills in the background. The coin bears the word “ESPAÑA”.
  • Issuing volume: 8 million coins.

Republic of San Marino – 2005: World Year of Physics [Official Journal C 244 of 4.10.2005]

  • Design: Free interpretation of the allegorical painting known as “La fisica antica” or the study of the planets, depicting Galileo Galilei. The twelve stars of the European Union are depicted on the outer ring.
  • Issuing volume: 130 000 coins.

Finland – 60th anniversary of the United Nations and 50th anniversary of Finland’s membership of the United Nations [Official Journal C 244 of 4.10.2005]

  • Design: The inner part of the coin depicts a dove of peace formed of pieces of a jigsaw puzzle. The twelve stars of the European Union are depicted on the outer ring.
  • Issuing volume: 2 million coins.

Italy – 1st anniversary of the signing of the European Constitution [Official Journal C 283 of 16.11.2005]

  • Design: The inner part of the coin shows a representation of Europa and the bull. Europa holds a pen and the text of the European Constitution. The words “COSTITUZIONE EUROPEA” form a semicircle on the lower part of the outer ring. The twelve stars appear on the upper part of the outer ring.
  • Issuing volume: 18 million coins.

Vatican City State – 20th World Youth Day held in Cologne in August 2005 [Official Journal C 283 of 16.11.2005]

  • Design: The inner part of the coin shows a representation of Cologne cathedral with a comet in the upper part of the design. The words “XX GIORNATA MONDIALE DELLA GIOVENTÙ” form a semicircle. The twelve stars appear on the upper part of the outer ring.
  • Issuing volume: 100 000 coins.

Luxembourg – 25th birthday of the heir to the throne, Grand Duke Guillaume [Official Journal C 20 of 27.1.2006]

  • Design: the left-hand side of the inner part depicts the effigy of His Royal Highness Grand Duke Henri looking to the right superimposed on the effigy of the hereditary Grand Duke Guillaume, on the right-hand side of the inner part. The date 2006 appears below both effigies.
  • Issuing volume: 1.1 million coins.

Germany – Schleswig-Holstein [Official Journal C 33 of 9.2.2006].

  • Design: The inner part of the coin shows a representation of the “Holstentor”, the landmark gate of the town of Lübeck. The twelve stars form a semicircle on the upper part of the outer ring, interrupted by the year of mintage “2006” at the top of the coin. The words “BUNDESREPUBLIK DEUTSCHLAND” form a semicircle on the lower part of the outer ring.
  • Issuing volume: 30 million coins.

Italy – XX Olympic Winter Games – Turin 2006 [Official Journal C 33 of 9.2.2006].

  • Design: the foreground shows a skier racing, against a background of stylised graphic elements: the monogram of the Italian Republic “RI” at the top left, below it the letter “R” and an image of Turin’s landmark Mole Antonelliana building. The twelve stars of the EU encircle the design.
  • Issuing volume: 40 million coins.

Belgium – Atomium [Official Journal C 53 of 3.3.2006].

  • Design: The inner part of the coin shows a representation of the Atomium. Twelve stars surround the design on the outer ring of the coin. The monogram “B” appears at the top of the coin between two stars and the year of mintage “2006” at the bottom of the circle between two stars.
  • Issuing volume: 5 million coins.

Finland – 100th anniversary of universal and equal suffrage [Official Journal C 248 of 14.10.2006].

  • Design: The inner part of the coin shows faces. The twelve stars of the European flag are depicted on the outer ring.
  • Issuing volume: a maximum of 2.5 million coins.

Republic of San Marino – 500th anniversary of the death of Christopher Columbus [Official Journal C 248 of 14.10.2006].

  • Design: A portrait of Christopher Columbus and a representation of the three Caravels; above the portrait the inscription “SAN MARINO” and the wind rose.
  • Issuing volume: 120 000 coins.

Vatican City State – 5th Centenary of the Pontifical Swiss Guard [Official Journal C 260 of 28.10.2006].

  • Design: The coin features a Swiss guard taking the solemn oath on the Swiss Guard flag.
  • Issuing volume: a maximum of 100 000 coins.

Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Slovenia and Finland – 50th anniversary of the signing of the Treaty of Rome [Official Journal C 65 of 21.3.2007].

  • Design: The centre of the coin shows the Treaty signed by the six founding Member States on a background evoking the paving, designed by Michelangelo, of the Piazza del Campidoglio in Rome where the Treaty was signed on 25 March 1957. The translation of the word ‘Europe’ appears above the book.
  • Issuing volume: varies according to the Member States (from 0.4 million in Slovenia to 30 million in Germany)

Germany, Mecklenburg-Vorpommern [Official Journal C 76 of 4.4.2007].

  • Design: the inner part of the coin shows the Schwerin castle. The words ‘Meckenburg-Vorpommern’ appear underneath it. Twelve stars form a semi-circle on the upper part of the outer ring, intercalated by the vintage year ‘2007’ above the coin. The words ‘Bundesrepublik Deutschland’ form a half-circle on the lower part of the outer ring.
  • Issuing volume: 30 million coins.

Republic of San Marino – Bicentennial of the birth of Giuseppe Garibaldi [Official Journal C 233 of 5.10.2007].

  • Design: The inner circle of the coin features a portrait of Giuseppe Garibaldi. The inscription ‘SAN MARINO’ and the year mark ‘2007’ are engraved along the circle on the left and right hand sides respectively.
  • Issuing volume: 1 30 000 coins.

Monaco – 25th Anniversary of death of Princess Grace [Official Journal C 172 of 25.7.2007].

  • Design: On the inner part of the coin there is an effigy of Princess Grace in profile facing to the left. ‘MONACO’, followed by the mint mark, the year ‘2007’ and the engraver’s mark, is engraved in an arc in the bottom right of the inner part. The coin’s outer ring depicts the twelve stars of the European flag.
  • Issuing volume: maximum 20 001 coins.

Vatican City State – 80th anniversary of Pope Benedict XVI [Official Journal C 233 of 5.10.2007].

  • The inner part of the coin features a bust of His Holiness Benedictus XVI in profile facing to the left.
  • Issuing volume: 100 000 coins.

Germany – Hamburg [Official Journal C 13 of 18.1.2008].

  • The inner part of the coin features St Michael’s church, Hamburg. The name of the federal State ‘HAMBURG’ is inscribed beneath the church.
  • Issuing volume: 30 million.

The introduction of euro banknotes and coins: one year on

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The introduction of euro banknotes and coins: one year on

Outline of the Community (European Union) legislation about The introduction of euro banknotes and coins: one year on

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

The introduction of euro banknotes and coins: one year on

Document or Iniciative

Commission communication: The introduction of euro banknotes and coins — one year after [COM(2002) 747 final – Official Journal C 36 of 15.02.2003].

Summary

In the very first year of its existence in cash form, the euro quickly became part of the everyday life of Europe’s citizens. Most of them feel happy with the euro. Only one in five still has difficulties.

NOTES AND COINS IN CIRCULATION

Notes. At the beginning of January the euro-area’s central banks put 7.8 billion notes into circulation. The amount in circulation then fell, but rose again to reach 7.42 billion in October. The total value of notes in circulation reached 320.9 billion, or 4.5% of the euro area’s GDP.

The 50 note is the most common, both in number and in total value. It represents one third of the total value in circulation. In some Member States discussion arose about whether 1 and 2 notes should be introduced in addition to or as a replacement for the 1 and 2 coins. But the surveys show that 83.7% of citizens find the number of different denominations of banknotes just right (Eurobarometer survey, November 2002).

Coins. At the beginning of January the euro-area’s central banks put 40.4 billion coins into circulation. This amount dropped after mid-January, reaching 38.2 billion at the end of October. In value terms, this represents 11.9 billion. The number of coins per inhabitant varies widely among euro-area Member States, reflecting different national payment habits.

Some discussion of the usefulness of the low-value coins, especially the 1- and 2-cent coins, arose in some Member States. In Finland the law requires euro cash payments to be rounded to the nearest five cents and production and use of the 1- and 2-cent coins are therefore limited. According to the Eurobarometer poll, 53.5% of the euro-area population believes that the number of different denominations of coins is just right. The small coins also played an important role in helping to ensure that price conversion from national currency units was done correctly.

Cross-border euro flows. Euro notes and coins migrate as a result of travel, cross-border shopping and the redistribution process between national central banks, commercial banks and retailers. The mix of euro notes and coins (the origin of notes is identified by their serial number) will increase over time and probably reach an equilibrium level, but it is unclear at what pace this will happen. Some patterns are already emerging: it appears that coins of different denominations mix at different rates and that the high-value coins are more prone to migration. The number of “foreign” coins also varies from one place to another, e.g. it is different in urban and rural areas and in border regions.

Collector’s coins. The Member States have retained their right to mint euro-denominated collector’s coins that often contain precious metals and which have a nominal value and are legal tender. Unlike euro coins in circulation, collector’s coins will be legal tender only in the Member State which issued them. Their technical specifications must differ from the characteristics of “normal” coins. By the end of 2002 80 euro-denominated collector’s coins had been issued, with their face values ranging from 25 cents to 400 euros.

Medals. Medals also exist but do not have legal-tender status. To avoid confusion, they must not be denominated in euros, or bear the euro symbol or any design similar to the euro coins in circulation.

Commemorative coins. Member States may also issue euro-denominated commemorative coins. These are legal tender throughout the euro area. Their technical properties, sizes and face values correspond exactly to those of euro coins. The design on the national side may, for example, commemorate a special national event. In order to allow European citizens to familiarise themselves with the new currency and to avoid any possible confusion, Member States have agreed not to issue commemorative coins during the early years following the introduction of euro notes and coins.

Use of nickel. The 1 and 2 coins still contain a small amount of nickel, but 85% of coins are nickel-free, which is a vast improvement on national currencies. Nickel is used for security reasons, mainly in the central part of the coins, to make them less prone to counterfeiting and to allow them to be reliably identified in vending machines. Compared with the old national currencies, the 1 and 2 coins release only about half as much nickel.

Counterfeiting. The Commission and the Member States have set up a network of institutions for the fight against counterfeiting, with the participation of the European Central Bank (ECB) and Europol. Owing to the state-of-the-art security features of euro notes and coins, euro counterfeiting has remained at levels well below those for the old national currencies. In the first half of 2002 the ECB recorded only 7% of the number of counterfeit notes recorded in the same period in 2001. The number of counterfeit coins is negligible.

THE CITIZEN AND THE EURO

Calculating in euros. According to the Eurobarometer poll, 51.5% of euro-area residents have no difficulty using the euro. This result ranges from 71.7% in Ireland to 36.5% in France. 42.2% of respondents calculate mainly in euros when making purchases. Only exceptional purchases (a house or a car) are still mainly calculated in the old national currency.

Dual display of prices. The dual display of prices facilitated the changeover to the euro. The Eurobarometer poll shows that a slight majority (50.6%) no longer want shopkeepers to continue with the dual display of prices. Continued dual display is a mixed blessing. On the one hand, it helps people to adapt to the new currency but, on the other, it delays the mental conversion of the population to the euro. The Commission therefore recommends phasing out dual display by 30 June 2003 at the latest, including on bank statements.

General satisfaction. 49.7% of euro-area citizens consider themselves to be very or rather happy that the euro has become their currency, as against 38.7% who are quite unhappy or very unhappy. The figures vary significantly depending on the Member State, ranging from 84.2% who are satisfied in Luxembourg to 27.8% in Germany. More than two thirds find it easy to handle the various euro coins. An overwhelming majority (92.6%) say that they have no difficulty with the different national sides of the coins but find them a welcome source of diversity. In addition, 92.8% find the various euro notes easy to handle.

Cross-border trade and price transparency. The introduction of euro notes and coins strengthens the integration of markets in the European Union (EU) by eliminating exchange-rate risk, reducing transaction costs, and abolishing a psychological barrier to cross-border trade through price transparency. Since the changeover to the euro, 12% of European consumers are more interested in buying goods in another EU country. The attitude of companies has changed even more significantly: on average, 32% of businesses in the EU indicate that they are more interested in selling their goods abroad.

IMPACT OF THE EURO CHANGEOVER ON INFLATION

Medium- to long-term effect. The introduction of the euro will have a beneficial medium- to long-term effect on prices, as a result of much easier comparison of prices across the euro area, improved functioning of the single market and a more competitive environment, which will foster economic efficiency. This should be reflected in lower consumer prices.

Pattern of consumer prices. In January 2002, when euro notes and coins were introduced, overall inflation as measured by the Harmonised Index of Consumer Prices (HICP) rose noticeably, from 2% in December to 2.7% in January. It subsequently fell to 1.8% by June, the lowest in more than two and a half years.

Possible impact of the euro changeover on inflation. Eurostat published estimates of the inflationary impact of the changeover to euro cash on three occasions. Most of the observed inflation could be explained by factors not linked to the euro, such as normal inflation patterns, bad weather affecting fruit and vegetable prices, increased energy prices, increases in administered prices and taxes. According to these studies, this left a range of 0 to 0.2 percentage point that could be attributed to the changeover to the euro.

However, the studies also point to significant price jumps in the services sector (hotels, repairs, haircuts, etc.). For example, prices in the cafe and restaurant sector recorded a year-on-year increase of 4.3%.

Actual and perceived inflation. Many consumers associate the changeover with a general rise in prices. According to the November 2002 Eurobarometer survey, 84.4% of respondents thought that prices had been converted to the detriment of consumers, while 10.9% thought that prices had been rounded up and down equally. There are several explanations for the discrepancy between actual and perceived inflation.

First, consumers tend to form their perception about inflation on the basis of frequently bought goods and services (cafes, restaurants, repairs, haircuts, newspapers, etc.) and it was these goods and services which registered unusually large price increases following the changeover. Prices for other goods and services have recorded smaller rises or have even been falling (computers, cameras, etc.). These developments can offset one another in a comprehensive index like the HICP.

A second reason might be “menu costs”. These are the costs of changing prices, and this factor could have led to an unusually high proportion of firms changing prices at the turn of the year. If such price adjustments involved upward rounding and concerned the items used by consumers to form their perception, then the discrepancy between actual and perceived inflation does not come as a surprise.

OVERVIEW BY SECTOR

Banking industry. The introduction of the euro seems to have slightly changed customer behaviour with regard to the choice of means of payment. According to the available statistics, payments by credit card, debit card or electronic purse rose significantly in 2002. It is not possible to clearly isolate the euro’s effect on the general increase in the use of such payment instruments in recent years. The withdrawal of the eurocheque system contributed to these developments.

Cash amounts withdrawn at automatic teller machines (ATMs) have increased in a number of countries. This can be explained by the new banknote denominations and rounding effects.

With regard to cross-border withdrawals, the picture is diverse. Some Member States report an increase in such transactions, others a drop. This is because monetary union allows citizens to travel abroad with cash. Moreover, since 1 July 2002, the EU Regulation on cross-border payments (BG) (CS) (ET) (GA) (LV) (LT) (HU) (MT) (PL) (RO) (SK) (SL) has required charges for cross-border withdrawals to be the same as for national withdrawals.

As regards dual display of amounts, notably on account statements, many banks have continued this practice during 2002 and are considering extending it into 2003.

Retail sector. The retail sector played an important role during the changeover by distributing euro notes and coins and withdrawing the old national currencies. The dual display of prices greatly contributed to facilitating the changeover to the new currency, with many retailers deciding to continue this service throughout 2002.

Cash-in-transit sector. The CIT (cash-in-transit) sector played a key role in the changeover to the euro. Difficulties continue to hamper the transfer of cash from one country to another since the relevant rules have not yet been harmonised. The cash centres responsible for counting and sorting cash were under heavy pressure for several months.

Vending industry. Although the vending industry tried to adapt its vending machines as early as possible, some operators indicated temporary turnover losses at the beginning of the year. Cash-based machines, accounting for the vast majority of all vending machines, presented the biggest challenge. Operators frequently decided to replace their validation mechanisms, which represented a significant investment. It was easier to adapt electronic-purse systems.

Automatic validation of coins. As regards the validation of euro coins, whatever their origin, this posed no problem for the machines since the coins meet the demanding requirements of modern validation. Typically, vending machines accept all coin denominations except the 1- and 2-cent coins. Prices are generally rounded to the nearest 5 cents and price adjustments in both directions were observed.

EURO CASH OUTSIDE THE EURO AREA

It appears that the use of the euro has been increasing, particularly in European countries outside the euro area. In other continents its use is mostly confined to tourist areas.

Situation in Denmark, Sweden and the United Kingdom. A majority of European citizens outside the euro area have already held euro notes or coins in their hand, while many people have noticed products in their country labelled in euros. In Denmark, businesses are prepared to accept cash payments in euros and 13% even practice dual pricing. In Sweden a large number of shops, hotels and restaurants accept euro cash payments, especially along the border with Finland. The Swedish town of Haparanda has even decided to adopt the euro as the currency of payment. Prices are displayed in Swedish kronor and in euros, and the town’s budget is presented in the two currencies. The Swedish Government has set the date of 14 September 2003 for a referendum on entering the third stage of economic and monetary union (EMU). In the United Kingdom, especially in London and tourist areas, the euro is sometimes accepted for payments and dual pricing is practised occasionally.

Candidate countries. The introduction of euro cash has had some impact in the candidate countries as well. Ultimately, these countries are set to adopt the euro as their national currency. Shops, hotels and restaurants in most of them accept euros and in tourist areas prices are often displayed in euros. The use of the euro is most widespread in Bulgaria and Turkey, where it can be considered a parallel currency, together with the US dollar.

Other European countries. The Community has concluded agreements with Monaco, San Marino and the Vatican City authorising them to issue a certain quantity of euro coins. However, they are not authorised to issue euro notes. In Andorra the euro is circulating as the means of payment in place of the French franc and the Spanish peseta, as the country does not have a national currency. The euro is also used for payments in Kosovo and Montenegro, where it has replaced the German mark. In many countries, especially in the Balkans and eastern Europe, the euro as well as the US dollar are commonly used for transactions.

Africa. The euro is important in transactions in countries where the domestic currency is linked to the euro by a fixed exchange rate regime. This is the case in all countries belonging to the CFA zone (the Central African Economic and Monetary Union and the West African Economic and Monetary Union), as well as in Cape Verde and Comoros.

America. The entire American continent is strongly US-dollar-oriented and the introduction of euro cash has had only a limited impact. In the French overseas departments and territories (French Guiana, Guadeloupe, Martinique, etc.) the euro is the official currency. In the Dominican Republic, Cuba and Surinam payments in euros are possible, especially in tourist areas.

Asia and Oceania. In the Middle East the euro has had a very limited impact. Only in Israel is the use of the euro somewhat more common. In Asia the introduction of the euro has had a more significant impact. In Thailand, South Korea and Laos the euro is widely accepted in shops, restaurants and hotels. However, the US dollar remains predominant in international transactions. In Oceania, on the other hand, the euro is not yet accepted as a means of payment, except in the French territories in the region. In Australia and New Zealand the euro is seen as an alternative to the US dollar on international markets.

 

Review of the introduction of euro notes and coins

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Review of the introduction of euro notes and coins

Outline of the Community (European Union) legislation about Review of the introduction of euro notes and coins

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

Review of the introduction of euro notes and coins

Document or Iniciative

Commission Communication to the European Council: Review of the introduction of euro notes and coins [COM(2002) 124 final – Not published in the Official Journal].

Summary

The introduction of euro notes and coins was the largest-ever currency-changeover operation. More than 15 billion notes and 51 billion coins were produced and exchanged against 9 billion national currency notes and 107 billion national-currency coins. The operation, which took place essentially between the beginning of September 2001 and the end of February 2002, went smoothly and can, therefore, be regarded as a major success.

This major success was due in part to perfect coordination between the Community institutions. The Commission, through its recommendations and proposals, gave a strong and coordinated boost to the measures taken by the participating Member States. It set up networks comprising the heads of the national administration task forces and the communication directors in the finance ministries. It also acted as an information point. For its part, the European Central Bank (ECB) effectively coordinated the measures taken by the national central banks. To ensure the smooth introduction of the euro, action was taken to mobilise financial institutions, sales outlets, the police, transport firms and, above all, the public in Europe, whose cooperation was essential. The Commission, the different ministries involved, banks and trade associations spent over half a billion euros on information campaigns for the general public between 1996 and 2001.

The introduction of euro notes and coins and the withdrawal of national currencies took place more rapidly than initially expected thanks to good organisation. By the end of the first week in January euro payments accounted for most cash payments and by the end of the second week very little national currency remained in circulation.

The operations

Frontloading and sub-frontloading operations. As of September 2001 banks and sales outlets were frontloaded and sub-frontloaded with the first notes and coins. Member States were free to decide when to begin the operations. By 31 December 132.1 billion euro notes, equivalent to 21 % of total production, were distributed to banks. More than 73 % of the total production of coins was distributed to banks between September and December, although there were differences between Member States. All the operations went smoothly.

Frontloading. The sub-frontloading of sales outlets with notes and coins began in September in a number of countries. The opportunity given to sales outlets to be sub-frontloaded with small quantities so that their payout-desk staff could receive training was not widely taken up. Overall, participation by the 2.8 million sales outlets in the euro area in sub-frontloading operations was very uneven. While virtually all traders were sub-frontloaded in Ireland, the figure in Italy was below 10 %. On average, banks sub-frontloaded only 9 % (in value terms) of the notes they received. The results were slightly better for coins. It is interesting to note that the participating countries with the best results were those that offered incentives and/or took steps to alleviate logistical constraints (Germany, Ireland, the Netherlands and Austria).

Coins. In order to acquaint themselves with the new coins, individuals were able to buy from mid-December small kits containing coins the value of which varied between Member States. The kits were a great success and the general public bought them with great enthusiasm. Over 150 million kits were sold. Contrary to fears, individuals fully observed the ban on using coins before 1 January 2002. They were only a few isolated cases involving vending machines.

In all, 6 billion notes (40 % of production) and 37.5 billion coins (73.5 % of production) were distributed via frontloading. The success of frontloading made a decisive contribution to the rapid take-up of the euro at the beginning of 2002.

Distribution of notes and coins in January 2002. The new notes and coins were distributed primarily via withdrawals from automated teller machines (ATMs), via withdrawals at financial institutions and via change given in sales outlets. On average, 80 % of ATMs had been converted to the euro by 1 January 2002. By 4 January virtually all ATMs were dispensing only euros. Technically, the operation went smoothly, except for some problems in Italy and Finland. The number of withdrawals was very high during the first week, reflecting the enthusiasm and curiosity of individuals, and then after two weeks started to fall back to normal levels. No serious supply problems were encountered at ATMs.

Exchange od old national currencies. During the first ten days of January, consumers flocked to their bank to withdraw euros or to exchange their old national currency (“legacy currency”), causing queues to form. In some countries the volume of euros supplied to individuals at counters was higher than that supplied via ATMS. In Germany, Spain and Luxembourg banks were even open on 1 January.

Role of traders. In order to give change, traders required a much larger cash float since they were unable to give change using the legacy currency. Generally speaking, sales outlets complied with this rule. The situation regarding the distribution of notes and coins to sales outlets was strained during the first week on account of the large number of consumers using large-denomination notes for their purchases. Longer queues were inevitable. The 7 585 cash-transport vehicles in service in the euro area thus operated at full stretch during that time. Generally speaking, there were only isolated shortages of certain denominations of notes and coins. Member States’ central banks provided mutual assistance when that was needed. For instance, France acquired 100 million 50 cent coins from Spain and the Bank of Portugal received several million notes of different denominations from the Eurosystem.

The assessment is, therefore, a positive one since the combination of these three channels enabled the single currency to be distributed very rapidly to the 300 million inhabitants of the euro area.

Use of the euro for cash payments. In the first few days consumers tended to spend their legacy currencies before using the euro. The legacy currencies swiftly disappeared from circulation as traders and banks, which had a “mopping-up” effect, gave change in euros. The share of the euro in cash payments averaged some 20 % by the end of 2 January, 55 % by the end of 4 January and 95 % by 16 January. The total volume of cash payments was high in the first two weeks of January and then began to return to normal as the legacy currencies were withdrawn from circulation. All the other adaptations such as the conversion of accounts, cards and electronic payment terminals were satisfactory. Ireland and the Netherlands were the countries that were quickest to change over to euro payments and virtually all payments were effected in euros by 8-10 January. Other countries including Belgium, Spain and France only just exceeded the 70 % mark by that time.

Recovery of legacy currencies. Legacy currencies were returned for the most part in a matter of weeks. One third of the notes in circulation were recovered by 31 December 2001 and the 75 % mark was exceeded on 8 February. The actual circulation of legacy currencies was much lower: bottlenecks at temporary storage depots led to delays in counting notes at central banks.

Recovery of coins. The withdrawal of coins was even slower: by 22 February only 27.9 % of national coins (in value terms) had been recovered as a result of coins being held in storage pending counting. With the help of publicity campaigns, central banks withdrew before the end of 2001 around 9 % of coins in circulation. It is now clear that some notes and, in particular, a large number of coins will never be recovered, having been lost or hoarded by collectors. In most Member States the period for recovering legacy currencies is limited (see table below).

Other matters associated with the introduction of euro notes and coins

Price stability. According to consumer surveys, a large proportion of the public (67 %) felt that more often than not prices had been rounded upwards on the occasion of the changeover to the euro, while 28 % felt that price increases and decreases had balanced one another out. Only 1.9 % took the view that prices had been rounded downwards. The inflation figures published by Eurostat show that, although annual inflation rose from 2 % to 2.7 % between December and January, this increase was attributable to several factors not linked to the euro, such as increases in certain taxes, higher oil prices and higher prices for fruit and vegetables. According to Eurostat, the currency changeover accounted for only between 0 % and 0.16 % of the monthly price trend. Voluntary price stability agreements were generally complied with.

Security. Despite an unprecedented number of cash-transport operations and a doubling in the number of notes and coins in circulation, the number of incidents was well below normal. Between September and December only 27 robberies of euro notes and 17 robberies of euro coins were reported. The effectiveness of security measures was very satisfactory.

Production quality. The quality control of the production of euro notes and coins was very effective. Only a few cases of defect were detected and the probability of receiving one of these defective euros is extremely small. The presence of nickel in 1-euro and 2-euro coins had been criticised but the tests carried out showed that there was no allergic reaction.

Counterfeiting. Euro notes and coins are better protected against counterfeiting than any of the old national currencies. Only some fifty or so forgeries of notes were detected in January, an exceptionally low figure, and only two poor-quality forgeries of coins were identified.

Conversion of vending machines. The adaptation of vending machines proceeded less smoothly. Many vending-machine operators underestimated the speed at which the new currency would replace the legacy currencies and suffered from declining turnover because some of their machines had not been converted. The time lost could not be made up rapidly because of shortages of trained staff. There were a few cases where euro coins produced in other participating countries were rejected because equipment had not been properly adjusted.

Introduction of the euro in third countries. In December 2001 26 central banks and financial institutions outside the euro area had frontloaded a total of some 4 billion euros in order to ensure that euro notes would be available in the first days of January. A large number of national notes, in particular German notes, were hoarded or used in central and eastern Europe. They began to be returned in 2001.

Public reactions

The public’s assessment of the effectiveness of preparations was largely positive: on average, three quarters of the public considered themselves to have been well or very well prepared on 1 January 2002. A majority considered that the early changeover of bank accounts to the euro helped them to become acquainted with the new currency. When it came to handling euros, one out of every five people stated at the end of January that the changeover was still posing difficulties (only one out of every 35 people claimed to be experiencing many difficulties). Most people had no problem recognising or handling the different euro coins, with Ireland being the one exception.

Thinking in terms of the euro. The transition to the euro did not alter the purchasing behaviour of 77 % of the public. Many consumers still had difficulty in memorising euro prices. Most of them continued to think in terms of the legacy currency, compared with a minority of 28 % that already think in terms of the euro. However, people used calculators and converters only to a modest degree. A majority felt that dual pricing should cease at the end of the period of dual circulation. The figures do though differ significantly between countries.

General satisfaction. Generally speaking, 60 % of people considered that the changeover to the euro would bring more advantages than disadvantages. This view was even more strongly shared by the under-24s. Moreover, a large majority said they felt more European thanks to the euro. Four out of five individuals felt that the changeover to the euro went well or very well. Lastly, over two thirds of the general public were happy that the euro was their currency and it was only in Germany, Greece and Austria that there was a higher proportion of dissatisfied individuals.

Preparation of small and medium-sized enterprises (SMEs)

Overall, the concerns that SMEs may have been poorly prepared were not justified. Even those that were slow to prepare seemed to have managed to switch to the single currency at the last minute. At the time of the changeover, 95 % of SMEs already kept accounts in euros. Most of them said that they did not encounter any difficulties in switching to the euro. A few problems were encountered with IT systems, the setting or display of prices and invoicing. Overall, there were no unpleasant surprises, with 95 % of SMEs feeling that the changeover went as planned or even better than planned. One enterprise in five expected the euro to have a positive impact on their business.

The changeover in figures: main national provisions

– Exchange at banks after legal tender Redemption by central banks after legal tender
Belgium 31/12/2002 Notes: Indefinitely
Coins: 31/12/2004
Germany 28/02/2002 Indefinitely
Greece to be decided by each bank Notes: 01/03/2012
Coins: 01/03/2004
Spain 30/06/2002 Indefinitely
France 30/06/2002 Notes: 17/02/2012
Coins: 17/02/2005
Ireland to be decided Indefinitely
Italy 30/06/2002 01/03/2012
Luxembourg 30/06/2002 13/12/2004
Netherlands 31/12/2002 Notes: 01/01/2032
Coins: 01/07/2007
Austria 28/02/2002 Indefinitely
Portugal 30/06/2002 Notes: 30/12/2022
Coins: 30/12/2002
Finland to be decided by each bank 29/02/2012

The second stage of the EMU

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The second stage of the EMU

Outline of the Community (European Union) legislation about The second stage of the EMU

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

The second stage of the EMU

In accordance with the Treaty, the second stage began on 1 January 1994 with, in particular, establishment of the European Monetary Institute (EMI), based at Frankfurt am Main. The tasks of the EMI were twofold:

  • strengthening cooperation between the national central banks and the coordination of Member States’ monetary policies (during this stage, monetary policy remains in the hands of the national authorities);
  • carrying out the necessary preparatory work for establishment of the European System of Central Banks (ESCB), which is to conduct the single monetary policy from the beginning of the third stage, and for introduction of the single currency.

During the second stage, Member States must ensure that their national law is compatible with the Treaty and with the Statute of the ESCB, with special reference to independence of their national central bank. They must also make significant progress towards convergence of their economies, since the move to the third stage is conditional on fulfilment of the four convergence criteria laid down in the Treaty. The Commission established annual reports on the state of convergence between Memeber States

The monetary turmoil experienced in 1995, largely caused by the slide in the value of the dollar, in fact strengthened the Member States’ political determination to go ahead with EMU. That determination took shape at the Madrid European Council of 15 and 16 December 1995, which confirmed that the third stage of Economic and Monetary Union was to go ahead on 1 January 1999 in accordance with the convergence criteria, the timetable, the protocols and the procedures laid down in the Treaty. On the basis of the discussions initiated by the Commission’s Green Paper, the fifteen Heads of State or Government spelled out the scenario and the timetable for introducing the single currency, which they decided to call the euro.

Rounding off two years of intensive work by all the EU institutions, the Dublin European Council of 13 and 14 December 1996 noted that there was political agreement on all the necessary foundations for setting the single currency in place:

  • the legal framework for the use of the euro;
  • the Stability and Growth Pact for ensuring strict budgetary discipline;
  • the structure of the new Exchange-Rate Mechanism for those Member States not joining the euro zone.

At the same time the EMI presented the designs of the banknotes that will be put into circulation from 1 January 2002. The euro has now become a tangible reality for the general public.

Throughout 1996 and 1997 the economic upturn, against a background of closer nominal convergence, interest and inflation rates at exceptionally low levels, and stable exchange rates (the Finnish markka joined the EMS Exchange-Rate Mechanism in October 1996 and the Italian lira returned to the ERM in November), enabled there to be a general improvement in the state of public finances, paving the way for the majority of Member States to switch to the euro in 1999.

Greece's membership in the single currency

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Greece’s membership in the single currency

Outline of the Community (European Union) legislation about Greece’s membership in the single currency

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Greece’s membership in the single currency

Document or Iniciative

Council Decision of 19 June 2000 in accordance with Article 122(2) of the Treaty on the adoption by Greece of the single currency on 1 January 2001 [Official Journal L 167 of 7 July 2000].

Summary

At the time of the transition to the third stage of economic and monetary union (EMU), Greece did not fulfil the convergence criteria (Decision No 98/317/EC) and was covered by a derogation laid down in Article 122 of the Treaty. Every two years, or at the request of the Member State concerned, a report by the Commission and the European Central Bank (ECB) examined whether the convergence criteria were met. Greece requested that the derogation be repealed on 9 March 2000.

In its decision, the Council took the view in the light of the Commission and ECB report that:

  • Greece fulfilled the criterion relating to the average rate of inflation; during the previous year, the inflation rate reached 2 %, which was lower than the reference value (2.4 %);
  • Greece was not the subject of a decision on the existence of an excessively high government deficit (Decision 2000/33/EC), as the annual government deficit did not exceed the reference value (3 % of GDP) and the government debt ratio was approaching the reference value (60 % of GDP) at a satisfactory rate;
  • Greece had been a member of the exchange-rate mechanism of the European Monetary System (EMS) and subsequently of ERM II for two years without devaluing its currency’s central rate;
  • Greece met the criterion of the long-term interest rate; over the previous year, the interest rate reached 6.4 %, which was lower than the reference value (7.2 %);
  • Greek domestic legislation, including the statute of the national central bank, was compatible with the Treaty and the Statute of the European System of Central Banks (ESCB).

The Council therefore considered that Greece had achieved a high level of sustainable convergence and that it fulfilled the necessary conditions for the adoption of the single currency. The derogation relating to Greece was repealed on 1 January 2001.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Council Decision 2000/427/EC

01.01.2001

–

OJ L 167 of 07.07.2000

Related Acts

Council Regulation (EC) No 1478/2000 of 19 June 2000 amending Council Regulation (EC) No 2866/98 on the conversion rates between the euro and the currencies of the Member States adopting the euro.

By this Regulation, the Council set the conversion rate between the Greek drachma and the euro at 340.750 drachmas per euro, as of 1 January 2001.

 

United Kingdom: EMU opt-out clause

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United Kingdom: EMU opt-out clause

Outline of the Community (European Union) legislation about United Kingdom: EMU opt-out clause

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

United Kingdom: EMU opt-out clause

Document or Iniciative

Protocol (No 25) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland (1992), annexed to the Treaty establishing the European Community.

Summary

This Protocol specifies the provisions of the United Kingdom’s opt-out from moving to the third stage of economic and monetary union (EMU), meaning that it has not introduced the euro for the time being. The United Kingdom is still in the second stage of EMU. The opt-out clause was a condition for the United Kingdom to approve the Treaty as a whole.

PROVISIONS OF THE OPT-OUT CLAUSE

The Protocol states that certain articles of the Treaty do not apply to the United Kingdom:

  • its powers in the field of monetary policy are not affected by the Treaty (the United Kingdom retains its powers in the field of monetary policy under national law);
  • it is not subject to the provisions of the Treaty relating to excessive deficits;
  • it is not concerned by the provisions of the Treaty relating to the European System of Central Banks (ESCB), the European Central Bank (ECB) or the regulations and decisions adopted by those institutions.

The United Kingdom’s voting rights are suspended for the acts of the Council concerning:

  • the decision on the irrevocable fixing of the exchange rates between the currencies of the Member States that move to the third stage and adopt the euro;
  • the appointment of the President, the Vice-President and the other four members of the Executive Board of the ECB.

For this purpose, the weighted votes of the United Kingdom are excluded from any calculation of a qualified majority.

NOTIFICATION OF THE UK GOVERNMENT

On 30 October 1997, the UK Government notified the Council that it was not intending to adopt the single currency on 1 January 1999. The United Kingdom may change its notification at any moment and introduce the single currency provided that it satisfies the following conditions:

  • the UK Government and Parliament take a decision in this respect (with or without a referendum, depending on national law);
  • the United Kingdom meets the convergence criteria laid down in the Treaty establishing the European Community.

Acting at the request of the United Kingdom, the Council, after examining a report from the Commission and the ECB, after consulting the European Parliament and after discussion in the Council, meeting in the composition of the Heads of State or Government, will decide whether the conditions are met and will act by qualified majority.

THE FIVE ECONOMIC TESTS

The UK Government has announced that any move to the third stage of EMU will depend on five economic tests being met:

  • Convergence of business cycles: Business cycles in the euro zone and the United Kingdom must be compatible. The assessment will focus on economic indicators such as inflation, interest rates, the output gap and the real effective exchange rate with a view to long-term convergence.
  • Flexibility: The UK economy must be flexible enough to ensure that any asymmetrical shocks can be absorbed by, for example, labour-market flexibility and mobility and by fiscal policy.
  • Investment: UK participation in the single currency must promote investment (foreign or domestic) in the long term.
  • Financial services: EMU must improve the competitive position of the UK’s financial services industry, particularly in London.
  • Growth, stability and jobs: EMU must have positive effects on employment and growth, measured by the impact on UK foreign trade, price differentials and macroeconomic stability.

According to the UK Government, these tests must be met before the United Kingdom applies to participate in the third stage of EMU. They are in addition to the formal criteria laid down in the Treaty. The assessment of the tests by the UK Treasury carried out in June 2003 (EN) was as follows: since 1997, the United Kingdom has made real progress towards meeting the criteria of the five tests. However, although the possible benefits (increases in investment, financial services, economic growth and job creation) seem clear, the Chancellor of the Exchequer cannot definitively conclude that convergence will be sustainable and that flexibility is sufficient to cope with any difficulties with the euro zone. A decision to adopt the single currency is therefore not currently in the UK national interest, according to reports from the Treasury.

 

Denmark : EMU opt-out clause

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Denmark : EMU opt-out clause

Outline of the Community (European Union) legislation about Denmark : EMU opt-out clause

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Denmark : EMU opt-out clause

Document or Iniciative

Protocol on certain provisions relating to Denmark, annexed to the Treaty establishing the European Community (1992).

Summary

The Protocol on certain provisions relating to Denmark, annexed to the Treaty establishing the European Community, provides Denmark with the guarantee that it will not automatically proceed to the third stage of EMU even if the criteria are fulfilled. The Danish Constitution requires a referendum to be held on this issue.

Provisions of the Protocol

The Protocol stipulates that:

  • the Danish Government will notify the Council of its position concerning participation in the third stage before the Council makes its assessment of the convergence criteria;
  • in the event of a notification that Denmark will not participate in the third stage, Denmark will be granted an exemption the effect of which will be that all provisions of the Treaty and the Statute of the European System of Central Banks (ESCB) referring to a derogation will be applicable;
  • the procedure for abrogating the exemption will only be initiated at the request of Denmark.

In the event that the exemption is abrogated, the provisions of the Protocol cease to apply.

Referendum on the Maastricht Treaty (1992)

The Danish Parliament adopted the Maastricht Treaty in May 1992, with 125 votes for and 25 votes against. The Danish Constitution requires a referendum to be held on any draft legislation authorising a transfer of powers to supranational authorities.

The Maastricht Treaty was presented to the Danish people in a referendum on 2 June 1992. The Treaty was rejected with 50.7 % of the votes.

Responding to Denmark’s concerns: the Edinburgh declaration

Since the Treaty had to be ratified by all Member States before it could enter into force, the Edinburgh European Council in December 1992 found a solution in the form of the Decision of the Heads of State and Government, meeting within the European Council, concerning certain problems raised by Denmark on the Treaty on European Union. This declaration refers to the document “Denmark in Europe” which was presented by the Danish Government and set out the main problems identified:

  • the defence policy dimension;
  • the third stage of EMU;
  • citizenship of the Union;
  • cooperation in the fields of justice and home affairs;
  • the principle of subsidiarity .

The European Council laid down provisions designed to meet the Danish concerns which would apply exclusively to Denmark and to no other Member States, neither at the present time nor in the future. As regards entry to the third stage of EMU, the declaration lays down the following decision:

  • In accordance with the Protocol on certain provisions relating to Denmark, Denmark has given notification that it will not participate in the third stage of EMU. Accordingly, Denmark will not participate in the single currency.
  • Denmark will not be bound by the rules concerning economic policy which apply to Member States participating in EMU.
  • Denmark will retain its existing powers in the field of monetary policy according to its national laws and regulations.
  • Denmark will participate fully in the second stage of EMU and will continue to participate in exchange-rate cooperation within the European Monetary System (EMS).
  • Denmark retains the capacity to pursue its own policies with regard to distribution of income and social welfare.

A second referendum

On this basis, a second referendum was held on 18 May 1993. The Treaty was accepted with 56.8% of the votes.

Denmark’s situation today

The Danish krone has remained within the EMS and has been part of the new exchange-rate mechanism (ERM II) since the introduction of the euro. It may fluctuate within a 2.25% band on either side of the euro.

Referendum on stage three (2000)

After the adoption of the single currency by eleven Member States on 1 January 1999, the Danish Government decided to organise a referendum on Denmark’s entry to the third stage of EMU and thus to abrogate the opt-out. The referendum was held on 28 September 2000. There was a turnout of 86% and 53.1 % of the voters were against the adoption of the euro.