What is the euro?
The euro is a currency that people use in many European countries. One euro is divided into 100 cents.
How much is a euro worth?
At the moment, one euro, which is written as €1, is worth about 79p. But the value of the euro compared to the pound changes every day: €1 has been worth as much as 98p, and as little as 57p. (The value of one currency compared to another is called an exchange rate.)
How did it get its name?
The name ‘euro’ was chosen because it’s a word that speakers of lots of different European languages would recognise as short for ‘Europe’. In Latvia, where the word for ‘Europe’ is Eiropa, the currency is called the eiro. Greeks and Slovaks call it the evro.
Where can you spend it?
The euro is the official currency of 17 European countries.
Together, these countries are called the Eurozone. If you go to any of these countries on holiday, you’ll have to change some of your pounds into euros before you can pay for ice creams, souvenirs or toys using cash.
Some shops in the UK that are popular with tourists, such as Harrods in London, let you pay in euros.
Who set up the euro?
In 1992, leaders of 12 European countries agreed to start work on creating a single European currency. They set rules on things like government debt, inflation and interest rates that countries would have to stick to for a certain length of time before they would be allowed to join the euro.
They also created the European Central Bank (ECB), which is based in Frankfurt, Germany. It’s the job of the ECB to control the amount of euros available, and to set a single interest rate for the whole of the Eurozone.
Why was it set up?
Before the euro was created, the countries of the Eurozone all had different currencies – for example, the franc in France, and the Deutschmark in Germany. Every time a French family went on holiday to Germany, or a German company did business in France, they had to pay a charge to change their money into a different currency. Also, exchange rates between the different currencies changed every day, which meant that planning future holidays or business deals involved some uncertainty.
The euro was created to make it cheaper, easier and less financially risky for people in the Eurozone to travel and do business between Eurozone countries. It would give Europe a currency that was recognised and trusted all over the world, like the American dollar.
Some of the smaller countries that joined the euro had high levels of inflation, which made life difficult for people living there – imagine if one year a pound bought you two bars of chocolate, but next year it only bought you one! These countries wanted to join the euro because they hoped the Eurozone would have low levels of inflation, making their people richer and happier.
Some politicians also hoped that having one currency would make Europeans feel more closely linked to each other, and happier to work together to get things done – and maybe even prevent wars!
Why didn't the UK join the euro?
Some countries were worried that joining the euro would mean they lost the power to control their own money. Sweden, Denmark and the UK all chose to stay outside the Eurozone.
When was the euro introduced?
The euro was created on 1 January, 1999, but for three years it was only used electronically. You couldn’t hold a euro in your hand until 1 January, 2002, when 7.4 billion euro notes and 38.2 billion euro coins were issued overnight!
Read A beginner's guide to the euro: part 2