Author: Mário Centeno

The governor of the Banco de Portugal, previous Portugal’s Minister of Finance and Eurogroup’s President

The Economic and Monetary Union and 20 years of the euro

Twenty years ago, the central banks of the euro area promoted the biggest currency changeover in history, reflecting a paramount decision towards greater economic integration of 12 democracies.
The Economic and Monetary Union and 20 years of the euro

(©Banco de Portugal)

The introduction of the euro eliminated exchange risk, improved market and trade integration and supported consumer confidence. Today, the euro is the currency of more than 300 million inhabitants and a symbol of European solidarity. It is a key element for economic convergence between Member States. It represents an element of stability. Monetary policy, by ensuring price stability and recognizing the importance of financial stability, creates the conditions for a balanced and inclusive economic growth.

Over time, we have learned that building trust is the best way to speed up integration and smooth policy interactions. After the financial crisis, the risk reduction process (confirmed by the reduction of non-performing loans and debt-to-GDP ratios in all euro area countries and the improvement in the Government’s fiscal positions), enabled governments to agree, right before the pandemic, on the first steps of a euro area budgetary capacity, the Budgetary Instrument for Competitiveness and Convergence. This important decision paved the way for the commitment and rapid agreement in March 2020 of the NextGenerationEU.

The response to the pandemic demonstrated the importance of the euro. It was within the Economic and Monetary Union that a single, timely and concerted response to support the economy was outlined. This was only possible because of our common currency.

Monetary policy in the euro area reacted in a timely and effective manner, in line with the ECB mandate to preserve price stability, seeking to ensure the flow of credit to the economy and favourable financing conditions to all sectors and avoiding fragmentation of financial markets.

The trust in the euro, measured by the Eurobarometer reached a maximum in the context of the COVID crisis. For the first time ever, trust increased in the context of an economic crisis. Europeans considered the euro as part of the solution. Because the euro institutions delivered in a collective way.

Now, we are facing the disastrous consequences of the Russian invasion of Ukraine. Although in the euro area economic activity is being supported by the reopening of the economy after the pandemic and by a strong labour market, trade disruptions and increasing energy costs are boosting supply-side constraints. The sharply increase in energy and commodity prices is reducing demand and constraining production. In sum, inflation pressures intensified and price rises spread across sectors. Moreover, we still face uncertainty due to the war and the effect of current sanctions and possible further measures.

Nonetheless, we have the assurance that the Eurosystem stands ready to take whatever action is needed to pursue price stability, and to contribute to safeguarding financial stability. Monetary policy safeguards the transmission mechanism, making use of its flexibility and guaranteeing a gradual pace for normalisation.

One of the lessons of the pandemic is that monetary and fiscal policy can coordinate, and hence mutually reinforce each other. Preserving the autonomy of both policies while contributing to the welfare of our citizens is possible and desirable. Again, is essential that fiscal and monetary policy work in coordination. Fiscal policy is the right avenue to mitigate supply-side inflation, in particular in the context of economic recovery. However, fiscal measures should be targeted to the most vulnerable citizens and firms, without jeopardizing national budgets. In addition, in the context of energy driven inflation and constrained gas and oil supply, fiscal measures should not undermine climate transition goals. On the contrary, they should be used to clarify and, at the same time, accelerate the path towards carbon neutrality.

Furthermore, this new scenario of war helped to recognise, even driven by dimensions that we were naturally not aware, that the European economic integration is not complete. Strengthening defence and reducing energy dependency will imply massive amounts of resources, further justifying the creation of a European fiscal union.

Moreover, the review of the crisis management framework and the implementation of the capital market union should continue to be part of the financial agenda.

Continuing to strengthen the euro is a challenge for the future, as the euro should continue to be the common instrument of a Europe that exists for its citizens.

Regarding the currency, two projects deserve our best attention in the coming years.

The first one is the redesign of the euro banknotes, which should be completed by 2024. Overall, demand for euro banknotes has grown consecutively and, therefore, the security they provide remains a pressing a topic.

A second strategic project is the digital euro, which, moving forward, will offer the market an additional payment instrument, adapted to new consumer preferences, while maintaining Europe’s sovereignty.

The implementation of these projects will strengthen the euro. Today, as 20 years ago, our mission is to build a stable and reliable currency; an engine for Europe’s prosperity, union and global affirmation. With the banknotes with a new, safer and more inclusive design, or in digital format, the euro will continue to be the currency of Europeans.


The article is published in a series of articles in Obserwator Finansowy written by governors of central banks and distinguished economists. The series is under the special patronage of the Governor of Narodowy Bank Polski, Professor Adam Glapiński. The authors of the articles have agreed to waive their fees for writing the texts, and in exchange NBP shall donate the amount equivalent to the fees onto the account of the National Bank of Ukraine in order to support the NBU during the war. Below is a foreword by the Governor of NBP to the whole series:

On 24 February a huge tragedy occurred, in the face of which it is impossible to simply move on as if nothing had happened.

Nobody can remain indifferent to the misfortune that has befallen the Ukrainian nation.

All of us are shocked by the press reports, and particularly by what we see in the mass media.

Fighting Ukraine is not only its brave soldiers, but also an army of thousands of civilians trying to preserve normality in a country stricken by Russian aggression.

This army includes the staff of the National Bank of Ukraine, with whom NBP is in constant contact.

Aware of our Ukrainian colleagues’ needs, we have invited several central bank governors and eminent economists to share their knowledge on the economic processes taking place around the world.

It is rare for such a distinguished group of authors to feature in Obserwator Finansowy, which is published by NBP. It is also worth underlining that all the authors have waived the fees for their articles in order to donate them to meet the needs of our colleagues working in the National Bank of Ukraine.

I believe that you will find the series of these articles interesting, especially since they not only share the knowledge and experience of their authors, but also express goodwill towards the war-afflicted NBU.


                                    Prof. Adam Glapiński, Governor of NBP

(©Banco de Portugal)

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