When France adopted the euro in 1999, pro-European politicians celebrated it as a triumph of European unity. The common currency promised decades of prosperity.
Since January 1, 2002, France has used the euro for everyday payments, but the initial enthusiasm quickly faded as merchants raised prices during the currency transition. This “perceived inflation” did not show up in statistics but significantly increased people’s cost of living.
The euro did not bring growth to France—the country’s GDP remained weak, and its debt rose from 60 percent of GDP in 1999 to 113 percent in 2024, leading to a debt crisis and the fall of François Bayrou’s government. Yet, the country today benefits from the shared currency, which shields it from bankruptcy or devaluation—scenarios it might have faced with its own currency.
The common currency is not a single currency
The euro’s failure stems from a misunderstanding of two basic economic concepts: a common currency and a single currency. Unity is a political and cultural concept. A state is not held together artificially but through shared goals, values, and history.
Such unity enables citizens to cooperate, and a single currency expresses and reinforces this economic unity. It also naturally redistributes resources between regions, helping balance economic disparities.
A common currency, on the other hand, is merely an economic and technical tool through which multiple states use the same currency instead of their national ones. The main reason for introducing the euro was to eliminate exchange rate risks and fix exchange rates. Key advantages included removing queues at exchange offices and reducing the cost of currency exchange in financial transactions.
In exchange for these benefits, however, member states gave up their monetary sovereignty. They can no longer set their own monetary policy or devalue their currency when it would benefit the national economy. Unlike a single currency, a common currency does not enable natural fiscal transfers from richer to poorer regions, because the European Union is not a federation but a union of nation-states.
The euro project failed because politicians and citizens did not understand the difference between a common and a single currency. The euro was an ideological, not an economic, project—its success would have required a federalized Europe. In 2025, however, we are further from a federal Europe than we were in 2002.
Winners and losers of the euro
Today, we have a unique opportunity to understand what many overlooked in 2002. With Donald Trump’s second term, the issue of currency—particularly its strength—has become central once again. The problem of many Western economies lies in the shift from production-based to consumption-based models. A strong currency has made imports cheaper than exports, causing countries with long-term trade deficits to grow poorer.
Foreign trade balances once had a natural mechanism to correct this—exchange rates. These can also be adjusted artificially, which is precisely the goal of Donald Trump’s economic policy. To reverse the trend, a nation must weaken its currency to boost competitiveness. In other words, export success depends on a weaker currency.
The major winner of the euro’s introduction was Germany. The new currency allowed it to solve two problems at once. The Germans no longer clung to the strong Deutsche Mark, which had symbolized economic success but made exports harder. Because of their historical experience with inflation, Germans favored stability and a strong currency. With the introduction of the euro, that changed—the euro effectively devalued the Deutsche Mark quietly.
This made German industry even more competitive than its direct rivals, especially France and Italy. Those countries faced the opposite problem, as their exporters were forced to operate with a stronger currency. This unequal contest led to the gradual decline of the French economy, best reflected in its mounting public debt.
The tide has turned
Critics of the euro, such as Emmanuel Todd, point out that Europe is neither culturally nor socially homogeneous. The continent’s nations have different family structures, ethnic compositions, and historical values. According to them, this makes a unified economic and monetary framework like the euro a “forced union of incompatible realities.”
France and Italy were used to solving economic problems through currency devaluation. With the euro, that option disappeared when exchange rates were fixed in 2002. Now, however, the shared currency has proven to be France’s shield against state bankruptcy. The rating agency Fitch recently downgraded France’s credit rating, and other agencies are expected to follow.
A downgrade automatically raises the yields on French government bonds. France currently borrows for ten years at a rate of 3.5 percent—gradually increasing, but not catastrophic. By comparison, Germany borrows at 2.7 percent.
The euro’s strength becomes clear when looking at Norway’s government bond yields. Though Norway is rated among the world’s safest borrowers, its ten-year yields are higher than France’s—the country borrows at 4 percent. How is that possible?
The answer lies precisely in the euro. Large institutions such as insurers and pension funds hold massive euro-denominated reserves. Due to internal regulations, they primarily invest in euro-denominated bonds. Investors seeking higher returns choose French bonds over German ones because they believe that, despite France’s difficulties, the euro project will not collapse.
Thus, demand for French bonds remains strong, keeping yields relatively low. Moreover, the European Central Bank has made it clear that it will act to prevent speculation against national bonds. Thanks to the euro, France gains precious time—though not unlimited. Europe’s fate may well depend on whether France uses that time in the coming years to reduce its budget deficits.
Author: Matěj Široký