Switching to the euro, 20 years later: a good or bad decision?
On January 1, 2002, Catalonia left behind the peseta, with more advantages than burdens, according to experts
"The euro represented a change with a lot of advantages and disadvantages for Catalonia and for the countries using the currency," Xavier Ferrer, from the Economists Association of Catalonia, told Catalan News.
For Ferrer, losing the peseta, Spain’s national currency, and to start using a common currency throughout the eurozone, meant more advantages than burdens. Or at least for citizens, as Ferrer pointed out that governments and their economic policies were the most affected after the change.
But before all of this, let’s backtrack a little bit.
Launched in 1999, and fully adopted in 2002
"The euro has arrived!" exclaimed Dr. Willem F. Duisenberg on January 14, 1999. At that time, he was the president of the European Central Bank (ECB), the central bank of the 19 European Union countries which use the euro. Its main task is "to maintain price stability," as the ECB states on its website.
In 1999, Duisenberg welcomed the euro, but it was an "invisible" currency, the ECB says. The reason is that until January 1, 2002, the euro was only used "for accounting purposes and electronic payments." It was three years later that "coins and banknotes were launched in 12 EU countries, the biggest cash changeover in history," reads the euro history page.
That moment represented a huge change, Xavier Ferrer said, and ESADE business school professor of economics, Pedro Aznar, agrees.
"It was nothing too serious and everything was quite smooth, I would say. The transition to the euro was really easy [as] we started the euro and the new year," Aznar pointed out.
But at the time, there were several concerns regarding the price change, or publicly known as ‘el redondeo’, the round-up or round-down in Spanish. People were worried about a price increase because, at the time, authorities decided that the conversion rate would be 166.386 pesetas equal to €1.
"There wasn't a huge amount of inflation," Pedro Aznar said also to Catalan News. "I think there were more anecdotes or specific examples of products. I remember the newspaper in particular, 100 pesetas and it became €1," the ESADE business school economist highlighted.
Xavier Ferrer shares the same position. "After analyzing the increase in prices, inflation was not as high as it was expected to be," he said.
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"Whatever it takes!"
The euro has seen a lot during these last 20 years, with the most difficult time coming during the economic crisis in 2008.
The ECB enforced several measures to maintain price stability in the eurozone. It was four years later, in a conference in London in 2012, when then-president of the ECB, Mario Draghi, delivered his now-infamous line: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
That moment was crucial for the euro’s history, as it was for Spain and Catalonia, as they had to enforce austerity measures.
Economist Ferrer explained to Catalan News that before Spain joined the eurozone when there was a financial crisis, authorities would "devalue the peseta," just to keep working internally, despite having "a poorer country compared to other countries," said Ferrer.
This historic moment is when being part of the eurozone was a disadvantage for Spain’s executive. As part of the eurozone, the ECB controls the value of the currency, so Spain’s government could not do the same as in the past and devalue the euro. Instead, they had to obey and follow the austerity measures in force.
Devaluing the currency is "usually a temporary solution," says Pedro Aznar. "Something that happens when you devalue is that things that you import are more expensive and there are things that you have to import," adding that in Catalonia, "energy is something that we import."
So, devaluation would not solve the problem, it would be "like taking a painkiller, where you're going to feel better for a short period of time."
Experts agreed that following the ECB’s austerity measures was challenging at the time, but it came out as a better future for Catalonia and Spain. "We had some punctual sufferings but we remain in the European economic framework which is the one I believe we should be in," said Ferrer.
Even Aznar says that if Spain has devalued their currency, as in the past, "things would have been much worse," he said.
The euro’s future
For the last 20 years, the euro has been part of the lives of over 350 million citizens. A recent survey by the European Commission released in December 2021 says that the vast majority of citizens believe that having the euro was good for their country, and for the EU.
The figures show the importance of the euro in the present, but the future is uncertain. However, economist Ferrer says that Spain would not have survived the current crises that Europe is facing due to the coronavirus pandemic "without European aid and support," Xavier Ferrer said.
This is why it is important for Catalonia "to have a stable euro, remain within an economic, monetary and political union, and to have a European Union that is strong and respectful with its diversity but integrated in this globalized world," Ferrer added.
The eurozone "is becoming less relevant in the most important geopolitical events. So there is a focus on Asia, the growth of China, the role that China plays in global markets. Of course, the United States is still a very relevant player," says Pedro Aznar, as he thinks that not losing ground is "one of the challenges for Europe."
Especially with the population the European Union has, as these 27 countries represent 6% of the global population, but the EU has "a 20% share of the global economy, so it is important to remain," explained Xavier Ferrer, because if not, then not even Germany, the "most important" country, would be "relevant" in a global context.