Euro adoption

SUMMARY OF:

WHAT IS THE AIM OF THE REGULATIONS AND ARTICLE 140 OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION?

The two regulations provide legal foundation and certainty for introducing the euro (economic and monetary union).

Regulation (EC) No 974/98 sets out a timetable for transition to the euro.
Regulation (EC) No 1103/97 covers issues such as conversion rates and procedures, contracts and payment instructions.

Article 140 of the Treaty on the Functioning of the European Union (TFEU) sets out membership criteria for economic and monetary union and the adoption of the euro. It provides for regular monitoring of the progress non-euro European Union (EU) Member States make towards meeting those requirements.

KEY POINTS

Regulation (EC) No 974/98:

includes, in its annex, the euro adoption and cash changeover dates and the phasing-out period*, if applicable, for each participating Member State;
confirms the single currency:
- is the euro,
- is divided into 100 cents,
- replaces participating Member States’ national currencies at the agreed conversion rate,
- is the unit of account of the European Central Bank and participating national central banks;
states that reference to national currency in a legal instrument* is as valid as if denominated in euro;
notes national banknotes and coins remain legal tender from the day before the euro adoption date in the Member State concerned;
gives:
- the European Central Bank and national central banks of euro-participating Member States exclusive power to put euro banknotes into circulation,
- Member States the responsibility of issuing euro coins that comply with the denominations and technical specifications agreed by the Council of the European Union;
lays down the terms of any phasing-out period for national currencies – an option no euro-area Member State has yet used;
describes a ‘transitional period’ as 3 years at the most, beginning on the euro adoption date and ending on the cash changeover date;
states that national banknotes and coins remain legal tender until, at the latest, 6 months after the respective changeover dates – during this period, banks and credit institutions must exchange customers’ national currency for euro without charge, thereafter, only euro notes and coins are legal tender in euro-area Member States;
requires Member States to apply sanctions against counterfeit euro banknotes and coins.

Regulation (EC) No 1103/97:

replaces the European currency unit, a basket of national currencies previously used for EU accounting purposes, with the euro at a conversion rate of 1:1 in all legal documents from 1 January 1999;
guarantees that the introduction of the euro does not affect the continuity of contracts and all legal agreements and obligations containing a reference to a national currency;
states that the conversion rates for national currencies into euro extend to six figures – they may not be rounded up or down;
requires any conversion from one national currency to another to be made via the euro.

Article 140 TFEU and Protocol No 13 annexed to TFEU set out the economic and financial conditions, known as the ‘convergence criteria’, that Member States must meet in order to adopt the euro. These are the following.

Price stability. The inflation rate must be no higher than 1.5 percentage points above the average of the three best-performing Member States for 1 year.
Government finances. These must be sound and sustainable as shown by the absence of a Council decision on the existence of an excessive deficit.
Exchange rate stability. Excessive currency fluctuations must be avoided as evidenced by participating in the exchange rate mechanism without severe tensions and without devaluing for at least 2 years.
Interest rate convergence. Long-term interest rates must not exceed (by more than 2 percentage points) the rate of the average of the three best-performing Member States in terms of price stability.

FROM WHEN DO THE REGULATIONS APPLY?

Regulation (EC) No 974/98 has applied since 1 January 1999.
Regulation (EC) No 1103/97 has applied since 20 June 1997.

BACKGROUND

Legal certainty, especially for individuals and companies, is essential when a Member State replaces its national currency with the euro.
On 1 January 1999, 11 Member States fixed their exchange rates, adopted a shared monetary policy and launched the euro as a new common currency on world financial markets.
Since January 2023, the euro has been the currency of 20 Member States.

KEY TERMS

Phasing-out period. 1 year at most, beginning on the euro adoption date.

Legal instrument. Legislation, administrative acts, judicial decisions, payment instructions and other documents with legal effect.

MAIN DOCUMENTS

Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro (OJ L 139, 11.5.1998, pp. 1–5).

Successive amendments to Regulation (EC) No 974/98 have been incorporated into the original document. This consolidated version is of documentary value only.

Council Regulation (EC) No 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro (OJ L 162, 19.6.1997, pp. 1–3).

See consolidated version.

Consolidated version of the Treaty on the Functioning of the European Union – Part Three – Union policies and internal actions – Title VIII – Economic and monetary policy – Chapter 5 – Transitional provisions – Article 140 (ex Articles 121(1), 122(2), second sentence, and 123(5) TEC) (OJ C 202, 7.6.2016, pp. 108–110).