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The euro is the European Union's single currency. It took more than 15 years of negotiations, planning and preparation, before the single currency was launched on 1 January 1999. The criteria for joining the EMU (Europe's Economic and Monetary Union) were laid down in the 1992 Maastricht Treaty. In 1999, 11 members of the European Union signed up and Greece became the 12th member in January 2001. Three countries - Denmark, Sweden, and the UK - have decided to stay out, at least for now. So current members of the what is known as the "eurozone" are Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Spain, Portugal and Greece.

 The story so far

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Europe's monetary union resembles the way all states in the United States share the US dollar and have the same key interest rate. For the eurozone, the interest rate is set by the European Central Bank (ECB). Even though the eurozone's citizens are still using their old coins and bank notes, the exchange rates between member currencies are already fixed - so that the euro represents a fixed percentage of one Deutschmark or franc. Banks and many companies are already using the euro for internal book keeping and electronic money transactions. Foreign exchange dealers now trade the euro, rather than francs or lira, against other currencies. Consumers will receive their first euro banknotes and coins in January 2002.

 How the euro is run

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When the euro was launched, it bought $1.17. It then lost about 30% of its value against the US dollar, and fell to a low of $0.82 in October 2000. The slide prompted the European Central Bank to intervene four times in the currency markets to prop up the currency. The euro has subsequently rallied and now is closer to parity with the dollar. EU officials insist that it is undervalued and say the economic fundamentals should soon push up the single currency again.

Since its launch fierce discussion has been raging as to whether the single currency has been a success or a failure. Public support in key euro countries has been plummeting - especially in Germany, where many fear swapping the strong Deutschmark for the apparently less stable euro. Outside the eurozone, the British public appears to be hostile to the euro, while Sweden's politicians and voters remain undecided over whether to opt for the single currency or not. Denmark rejected eurozone membership in a hard-fought referendum in September 2000.

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  • Increased stability: Euro currency supporters believe that the euro's turbulent beginnings were only teething troubles. Supporters say that Europe is experiencing greater price stability as a result of the euro. For example Irish and Portuguese analysts argue that eurozone membership has kept their economies growing, while avoiding the wild currency swings of the past.

  • Investment and jobs: The UK's main pro-Euro campaign group, Britain in Europe, is warning of the medium to long-term threat to jobs if the UK remains outside. Critics say remaining outside the EMU is putting off large firms from keeping or expanding their factories here because of the volatility of the pound against the euro. They also say British workers are losing their jobs to counterparts in Germany, France and Belgium. Britain in Europe estimates that some three million jobs are dependent on the UK's trading links with other EU members.

  • Business benefits: Companies that export to other countries within the eurozone don't have to bear the costs of exchanging profits into their home currency anymore. Multinationals also save money if all their subsidiaries trade in the same currency. The disappearance of these transaction costs can boost economic growth, and make goods cheaper for consumers. Smaller firms in the eurozone are finding customers in regions they previously never bothered to export to.

  • Structural reform: The single currency has also been forcing eurozone governments to embark on structural reform programmes. Germany, the region's largest economy, has begun to overhaul its tax and pension systems, changes long demanded by economists. France has lowered taxes as well, while Italy and other countries reigned in their budget deficits.

  • Euro-bond growth: One of the biggest successes has been the bond market. Living in one large currency zone has allowed eurozone companies to raise huge amounts of money to finance investments and expansion. The euro bond market has overtaken the dollar bond market in size, and given the region's industry a huge boost.

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  • Loss of sovereignty: Critics say that economic and monetary union will ultimately force all members to harmonise taxes and other policies, which will erode political sovereignty. By pooling a country's control over its monetary policy with that of other states, critics say it could lead to smaller states being outvoted by big economies or larger countries being outmanoeuvred by groups of small nations.

  • Economic independence: Business for Sterling, the national anti-euro campaign, stresses that joining the euro would mean giving up national control on some of the key levers of economic power. It argues that the UK has enjoyed a decade of growth and low inflation because of its highly deregulated economy and should not throw this away by joining the euro.

  • Track record: The euro's fall is an embarrassment for politicians who predicted a single currency strong enough to challenge the dollar. Critics have seen its weakness as proof of failure. Its performance has left many of the European Union's voters seriously disenchanted. In the Danish referendum on whether to join the single currency most companies, all trade unions and all the big parties in Denmark were in favour of the euro but its weakness - and worries about national sovereignty - persuaded many people to vote against joining.

  • Interest rates: Euro's critics argue that the "one-size-fits-all" interest rate policy of the eurozone is a disaster. They say that an interest rate suitable for Italy or France may actually do harm for the economies of Ireland or Finland. Low eurozone interest rates, for example, could overheat the already strong economy of a new member state - or high euro rates could damage an already struggling country.

  • Euro debt: Euro critics have also suggested that the UK could become liable for the debts of its European partners. The principle allegation is that should state pension schemes in some of these nations fail, the consequent economic fall out would have to be paid for by all eurozone members.

  • Business costs: Businesses are expected to face high costs switching their systems to the euro. Fear exists that these costs could be passed on to consumers. Some critics also say that job uncertainty could also increase as companies relocate to other parts of the eurozone.

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  • Labour's policy is to "prepare and decide". Once the government decides that it is right for the UK to join the euro, it will hold a referendum. Government money is being devoted to the "national changeover plan" to inform business and the public of what the euro would mean and how to prepare for its possible introduction. Chancellor Gordon Brown has devised a set of criteria - the so-called "five economic tests" to enable him to determine when this has been achieved.

    • Are business cycles and economic structures compatible so that we and others could live comfortably with Euro interest rates on a permanent basis?
    • If problems emerge is there sufficient flexibility to deal with them?
    • Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
    • What impact would entry into EMU have on the competitive position of the UK's financial services industry, particularly the UK's wholesale market?
    • Will joining EMU promote higher growth, stability and a lasting increase in jobs?

     Gordon Brown's five euro tests

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  • Conservative: In October 1997, the shadow cabinet agreed the policy of opposing British membership for the remainder of the 1997-2001 Parliament and at this election for the duration of the next parliament. Party leader William Hague put the matter to a party-wide vote at the 1998 conference. The policy was endorsed by 84.4% of members on a turnout of just under 59%. The policy has since been further reiterated in the party's 1999 European Election manifesto and as the 'Sterling Guarantee' in the party's 'Common Sense Revolution' policy document. The Conservatives also oppose any spending of public money on the national changeover plan - something that Mr Hague dubbed the 'National Handover Plan'.

  • Liberal Democrats: Of the three main parties, the Lib Dems are the most ardent supporters of European monetary union. The party advocates a 'declaratory policy' which would mean the government making a declaration on a date that it intends to join the single currency, subject to referendum approval. This, the party says, would give the UK greater influence on the current running of European economic policy and help the nation prepare through a series of 'docking procedures'. The Liberal Democrats say that the criteria for joining the single currency should be those laid down in the Maastricht Treaty (which began the process of EMU in 1993).

     What the different parties think about the euro

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  •  BBC News Online: Euro cash
     BBC News Online: Redefining Europe
     Britain in Europe
     Business for Sterling
     UK Government euro site
     One currency for Europe

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