The member states’ meeting at the Strasbourg European Council in December 1989 decided to convene an Intergovernmental Conference (IGC) which culminated in the new Treaty on European Union, signed at Maastricht in 1992. The treaty set out a number of economic convergence criteria for member states to participate in EMU, concerning the inflation rate, public finances (relating to deficits and debt), exchange rate stability and long-term interest rates. The treaty came into effect in October1993.

These successful milestones attracted other countries to become members of the European Union, namely Austria, Finland and Sweden, which joined in 1995. In the meantime, EU leaders meeting at the Madrid European Council decided to name the euro the single currency and set a date of 1 January 1999 for the final stage of EMU.

They also agreed the following key elements for the changeover scenario:

• Decision on which member states would participate in the euro as early as possible in 1998, based on economic data for 1997;

• Early creation of ECB and appointment of an executive board to enable operational status on 1 January 1999;

• Three-year transition period between creation of the euro and introduction of notes and coins;

• Principle of “no compulsion, no prohibition”, meaning freedom to carry out transactions in euro during the transitional period, but no obligation to do so;

• Maximum six-month period for the dual circulation of euro and national notes and coins before final withdrawal of national currencies (later reduced to a maximum of two months).

In 1997 a new exchange rate mechanism (ERM II) was also set up to provide stability between the euro and the national currencies of the non-euro area member states. Meanwhile, in 1998 the heads of state and government meeting in Brussels decided that 11 member States fulfilled the convergence criteria and would take part in the euro from 1 January 1999. The countries were Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Holland, Austria, Portugal and Finland. Conversion rates between the participating national currencies and the euro were irrevocably fixed by the end of the year and became the official rates to be used for all conversions from national currencies to the euro. In June 1998, the European Central Bank was also created.

Legally, the participating national currencies had ceased to exist and became “non-decimal sub-divisions” of the euro. Greece could only join in 2001. The Danes voted not to adopt the euro in a national referendum on membership of the single currency. However, the Danish kroner continued to shadow the euro as a member of the ERM II.

Though not yet legally in circulation, the first stocks of euro coins and notes were distributed to commercial banks and post offices in so-called “frontloading” operations in advance of the introduction of notes and coins on 1 January 2002. Banks in turn began “sub-frontloading” these stocks to retail customers like shops, and some small quantities of banknotes were made available to businesses for training purposes. Starter kits were also distributed. The kits aimed to familiarise the general public with the new coins before e-day and help ensure that stocks of coins were distributed to shoppers.

January 2002 marked e-day for the first wave of countries to join the euro area or euro zone. Euro notes were distributed by bank machines and shops started to give customers change in euro cash. At the same time, each country started to withdraw national currency notes and coins from circulation.

Each member state adopted a transition period of dual circulation during which the public could spend their remaining national currency notes and coins in shops or exchange them for euro at banks.

The 10 new member states are obliged by the Maastricht Treaty to adopt the euro once all the necessary conditions have been fulfilled. Each country has set target dates by which they intend to adopt the euro. Malta’s intention is to adopt the euro on 1 January 2008 together with Cyprus and Latvia. Only three countries have planned to adopt the euro in 2007, namely Slovenia, Estonia and Lithuania. However, Estonia and Lithuania were unable to control their inflation rate and were constrained to postpone the adoption to a year later thus joining with Malta in 2008.

For further information, you may wish to visit the NECC website on www.euro.gov.mt or call the Euro Helpline on 154.

Daniela Xuereb is Information Officer of the National Euro Changeover Committee

Part I was published last Saturday