INDEPTH: THE EURO
The euro's performance
Amy Olmstead & Gary Graves | Dec. 2001 Updated Sept.2003
Europeans spent the better part of three years watching their new currency decline in value.
Despite its status as the world's No. 2 currency, the euro has withered against the U.S. dollar. It debuted at $1.17 US on January 1, 1999, only to fall to a low of 82 cents US in October of 2001. It has rebounded to almost 90 cents US since then. But people gathering their new bills in January of 2002 couldn’t help noticing the big drop in value.
There are a variety of reasons for such a decline – a decline that some experts say has left the euro as much as 25 per cent undervalued against the U.S. dollar. The main reason is the strength of the U.S. dollar against most world currencies, according to Alister Smith, deputy chief economist at CIBC.
In the early days of the euro, the U.S. dollar was strong largely because the American economy and financial markets were strong. As they declined in the past while, their outlook was still considered better than that of Europe. European growth is still slowing, while there are some signs of a U.S. economic recovery. That continues to help support the dollar, and will likely keep the euro near its current value.
“It looks as if the euro is going to move sideways around the 90-cent range and gradually improve, but not dramatically,” said Smith.
The euro also fell against the Canadian dollar. It now trades around $1.50 Canadian, down from its starting value of $1.81.
There are a wide variety of factors affecting the euro's strength, in addition to the performance of the U.S. dollar. Fluctuation of European economies affects corporate profits and financial markets.
Another factor is the European Central Bank’s handling of interest rates to support and boost economic growth. Europeans also affect the value of the euro through the extent of the foreign stocks, bonds and mutual funds they own.
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| TIMELINE: |
April 1951: Paris Treaty signed
March 1957: Treaties of Rome signed
March 1979: European Monetary System created
Feb. 1986: Single European Act signed
Feb. 1992: The Maastricht Treaty signed
Jan. 1994: European Monetary Institute created
Dec. 1995: EU backs euro as name for single currency
June 1998 : European Central Bank established
Jan. 1999: Euro is launched
Jan. 2001: Greece adopts euro
Aug. 2001: European Central Bank releases final details of euro banknote
Sept. 2001: Euros made available to banks and some retailers
Dec. 2001: Euro 'starter packs' with coins distributed
Jan. 2002: Euro bills enter common circulation
March 2002: Old currencies no longer accepted as legal tender
Sept. 2003: Sweden rejects euro
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