European ministers met on June 2 to celebrate 10 years of the European Central Bank, established after EU leaders met in Brussels and decided to launch economic and monetary union. It set 11 countries on the path to introduce the
euro in January 1999 and was history in the making. Ten years on, has that
bold and ambitious decision paid off? EMU has certainly confounded its strongest critics and discredited dire predictions of a break-up. The euro is here to stay and, judging by extensive analysis, seems an overwhelming success.
Today, the eurozone stretches from Finland to Cyprus, its 15 members soon to become 16 with the addition of Slovakia. With a population of 320 million, EMU is the largest market in the developed world and the euro an international currency that is second only to the US dollar. The monetary policy of the European Central Bank, backed by a framework that encourages budgetary discipline, has delivered sustained price stability, with inflation averaging just over 2% annually, notwithstanding the recent resurgence caused by soaring energy and food prices. In turn, interest rates have been kept remarkably low.
What to make, then, of the claims that the euro has
increased prices? It is certainly hard to square this perception with EMUâ€™s decade of record low inflation. Clearly, a few abuses that occurred around the 2002 changeover left a
lasting impression, particularly where they concerned everyday purchases. But
in reality, price increases during the year of the currency changeover amounted to just 0.1 to 0.3 percentage points.
The simultaneous rise in house and oil prices probably reinforced a psychological link between the euro and high prices, though it is worth remembering that the euro-dollar exchange rate has largely shielded the eurozone from the full effect of oil hikes. In dollars the price of oil increased five-fold in five years, but nowhere near in euros.
The disappearance of exchange-rate costs and risks has boosted cross-border trade and investment. The euro has also been a powerful driver of financial market integration, doubling to 40% the share of euro-area equities held across borders and fostering cross-border mergers and acquisitions. There have been 16m new eurozone jobs created over the past 10 years, three times the number created in the previous decade.
Of course, there is room for improvement. While some eurozone countries have performed exceptionally well, the growth rate of others has been undeniably modest. But if some politicians have used the euro as a convenient scapegoat, the real reason lies with the pace of economic reforms, rather than the single currency. Since 2006, Germany has flourished thanks to its programme of reforms and continues to expand at a strong pace despite the cooling economic climate.
There is scope for EMU
to be an even more effective platform to coordinate
and advance sound policymaking in the euro
area. Which is why this important anniversary is both an occasion for celebration and reflection.
As we prepare the ground for second decade of the euro, we are confident that the European single currency will become a valuable asset supporting the stability and dynamism of the EU as a whole. â€” The Guardian
Almunia is the European commissioner for economic and monetary affairs