The Euro: A Shared Currency Experiment

The euro is the most ambitious monetary union in history. The 1992 Maastricht Treaty set conditions for joining, including limits on inflation, deficits and debt, and in January 1999 eleven countries adopted the euro as an accounting currency, with notes and coins following in 2002. Supporters argued that a single currency would eliminate exchange costs and currency risk, deepen the single market and bind Europe together politically.

Skeptics drew on Robert Mundell's theory of optimum currency areas, which asks whether members have similar economic cycles, mobile workers and shared fiscal transfers; without these, one interest rate set by the European Central Bank may fit some members badly. That concern became real in the 2010s debt crisis, when members could not devalue to regain competitiveness. The euro survived, supported by new rescue mechanisms and the ECB, and has since added members, but debates about fiscal union continue.