Birth of the European Monetary System
It was the economic crisis of the 1970s that led to the first plans for a single currency. The system of fixed exchange rates pegged to the US dollar was abandoned. European leaders agreed to create a "currency snake", tying together European currencies. But the system immediately came under pressure from the strong dollar, causing problems for some of the weaker European economies.
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In the 1980s the dollar strengthened dramatically. US interest rates were very high. The cause was a dispute between the Reagan administration and the US central bank over the size of the budget deficit. In 1986 the world's leading industrial countries agreed to act and lower the value of the dollar. The successful deal was struck at New York's Plaza hotel.
ERM crisis
The Exchange Rate Mechanism - established in 1979 - was used to keep the value of European currencies stable. But fears that voters might reject the Maastricht treaty led currency speculators to target the weaker currencies. In September 1992 the UK and other EU countries were forced to devalue. Only the French franc was successfully defended against the speculators.
Euro launch
The euro was launched on 1 January 1999 as an electronic currency used by banks, foreign exchange dealers, big firms and stock markets. The new European Central Bank set interest rates across the eurozone. But uncertainty about its policy and public disagreements among member governments weakened the value of the euro on foreign exchange markets.
Central Bank intervention
After just 20 months the euro had lost nearly 30% in value against the dollar. The European Central Bank and other central banks finally joined forces to boost its value. The move helped put a floor under the euro - but it has still not recovered its value. A weak euro helped European exports, but undermined the credibility of the currency and fueled inflationary pressures.
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