The Euro (€) is the official currency of 17 countries within the European Union. While some 27 countries are part of the European Union, only 17 use the Euro. These countries are referred to as the Eurozone.
The European Union is not a single political entity, like the United States of America, but instead a combination of various countries with different economies, governments, banks and fiscal situations.
While every country deals with currency and fiscal issues, and all have problems that must be solved, the European Union has taken a unique approach to implementing the Euro.
To explain, a comparison between the European Union and the United States will clarify.
The United States, while composed of 50 states, is a single federated entity founded in 1776, and shortly thereafter the same legislative body that founded the U.S. provided that the dollar ($), using a decimal system, would be the official legal tender in the United States.
The United States is relatively young when compared to countries in Europe, but its method of first becoming a sovereign state before minting an official currency is historic.
The Euro is different in this respect. The European Union is comprised of various sovereign countries, each with its own governments and, prior to the Euro, its own currencies.
When conglomerated into the European Union, these countries remained as such, and are not directly under a single governing body. When the Euro was introduced in 1999, in part to solidify and stabilize Europe and its varying economies, some countries chose to adopt it and some did not, resulting in the formation of the ‘Eurozone’.
So what does this mean for the Euro and all those involved? Dr. Boyka Stefanova, associate professor of political science at UTSA, specializes in European Politics. She shared the pros and cons of the Euro to help answer this question.
One major strong point of the Euro is that there are approximately 500 million consumers currently using the Euro in what is now the largest trading economy in the world. However, the Euro is used only within the Eurozone, and this zone is becoming smaller. Countries such as Greece and Italy could revert back to their previous currencies. This may lessen the stability of the Euro overall, but such a problem is offset by the remaining countries such as Germany, which continues to grow economically and is a major fiscal power within Europe.
Still, it is difficult to employ an official currency without a federal structure to back it up. This gives rise to the question: should the whole of Europe consider federalization? According to Dr. Stefanova, the Euro does indeed possess the “political willpower” to remain in circulation in the future, though it is a “work in progress.”
What can the U.S. expect if the euro declines or collapses? The current exchange rate between the U.S. and the Eurozone is one euro for every U.S. dollar. With free trade markets across the Atlantic, larger corporations can expect higher profits while workers will struggle to maintain wages if the euro depreciates.