The Economic Impact Analysis of the Euro Currency on Twelve Member Countries of the European Union

This paper examines the economic impact of the euro (€) on 12 member countries of the European Union (EU) who adopted the euro as their common currency on January 1, 2002. Prior to the period, the Maastricht Treaty (MT) of 1992 and the Stability and Growth Pact (SGP) of 1997 laid down the convergence criteria with respect to price stability, convergence of interest rates, exchange rate stability, and budgetary balance that must be met by member countries. We examine euro’s impact on key macroeconomic variables such as inflation, unemployment and long term interest rates, exchange rate, government budget deficits and debts as percent of GDP, which are core of the convergence criteria by testing the null hypotheses of no differences between the mean values of these variables before (1985-1998) and after (1999-2012) the adoption of the euro against the alternative hypotheses that differences exist between the means. The overwhelming conclusion arrived at based on our empirical results is that euro’s economic impact on these 12 Euro zone countries has been more positive than negative.