The euro is the world’s second most important currency, shared by countries as different as Germany and Greece. Here’s how it works, who sets its interest rates, and why that’s so difficult.
The euro is the official currency of 21 of the European Union’s 27 member countries, a group known as the eurozone. It’s used by more than 340 million people.
It was introduced in 1999 for banking and financial markets, and euro notes and coins replaced currencies such as the German mark, French franc and Italian lira in 2002. Bulgaria became the 21st member in January 2026.
Some EU countries, including Sweden, Poland and Denmark, have kept their own currencies.
The euro is the world’s second most widely held reserve currency, after the U.S. dollar.
The European Central Bank
The European Central Bank, or ECB, is based in Frankfurt, Germany. It sets interest rates for the whole eurozone, with the main goal of keeping inflation at around 2%.
Its president is Christine Lagarde, a former French finance minister and head of the IMF. Its key rate decisions are made by a council that includes the heads of each member country’s central bank.
The ECB cut rates sharply from 2024 as inflation fell, before raising them again in 2026 as higher energy prices pushed inflation up. Its deposit rate was 2.5% in September 2026.
One rate for many countries
Sharing a currency brings big benefits. Businesses and travellers don’t need to change money or worry about exchange rates, and prices are easier to compare across borders.
But it also means countries give up control of their own interest rates and exchange rates. A single interest rate can be too high for a country in a slump and too low for one that’s booming.
The debt crisis
That tension came to a head in the eurozone debt crisis, which began in 2009. Greece revealed its budget deficit was far bigger than reported, and investors began to fear it, and other countries including Ireland, Portugal, Spain and Italy, couldn’t repay their debts.
Without their own currencies, they couldn’t devalue or set their own rates. Greece needed three international bailouts and endured years of deep spending cuts and recession. At times, there were fears it would leave the euro, or that the currency could break up altogether.
The crisis eased after ECB president Mario Draghi pledged in 2012 to do “whatever it takes” to preserve the euro, backed by the bank’s willingness to buy government bonds.
Since then, the eurozone has strengthened its rules and created a bailout fund, but it still doesn’t have a shared budget on the scale of a single country, which economists say remains a weakness.
