How the Euro Works

Planning the Transition

As outlined in the Delors Report, the transition to a single European currency followed a three-stage plan:

  • Stage one began on July 1, 1990, and immediately abolished (at least in principle) all restrictions on the movement of capital between the member states. It also began the identification of issues that needed to be dealt with and the development of a working program to implement the upcoming changes.
  • Stage two began on January 1, 1994, and marked the establishment of the European Monetary Institute (EMI). The EMI was responsible for coordinating the monetary policy and strengthening the cooperation of the central banks, as well as making preparations for the establishment of the European System of Central Banks, which included the single monetary policy and single currency. In December 1995, the European Heads of State or Government at the European Council meeting in Madrid voted on the name "euro" for the single currency of the European Monetary Union.
  • Stage three began on January 1, 1999, with the establishment of "irrevocably fixed exchange rates" of the currencies of the current 11 member states. At this point, the euro was the official currency of those countries, but could only be used in non-cash transactions such as electronic transfers, credit, etc. Greece joined the EMU in January 2001, raising the number of member states to 12.

For more details on the events occurring between 1957 and 1989, see the More Euro History section.