The Euro: Legal Status, Adoption, and the European Monetary Framework

The Euro: Legal Status, Adoption, and the European Monetary Framework

1. Introduction

The euro is more than a common means of payment. It is a legal institution created by the Treaties of the European Union and governed by a framework that combines supranational monetary authority, national economic responsibilities, common rules on currency circulation, and a formal procedure for admitting new Member States into the euro area.

Its introduction transformed the monetary relationships between participating states. Countries that previously maintained separate national currencies transferred monetary policy to the European Central Bank (ECB), adopted an irrevocably fixed conversion rate against the euro, and became part of a monetary system in which currency issuance, monetary operations, and the legal consequences of payment are governed by common European rules.

The euro also illustrates an important feature of European integration: the distinction between membership of the European Union and participation in all its common policies. Every EU Member State participates in the broader framework of Economic and Monetary Union, but not every state uses the euro. Some remain outside the euro area under a temporary derogation, while Denmark benefits from a specific Treaty-based opt-out.

As of November 2026, the euro is the official currency of 21 EU Member States. Bulgaria became the twenty-first member of the euro area on 1 January 2026, following the Council’s formal decision that it had fulfilled the necessary conditions for adoption.

This article examines the legal status of the euro, the distinction between the euro area and the European Union as a whole, the procedure for adopting the common currency, the legal consequences of currency conversion, and the rules governing euro banknotes and coins. It also considers the Bulgarian transition as a practical illustration of the European monetary framework.

2. The Euro as a Currency of the European Union

The euro was introduced as part of the third stage of Economic and Monetary Union. On 1 January 1999, participating Member States adopted the euro for accounting and financial purposes, while national banknotes and coins continued to circulate temporarily. Euro banknotes and coins entered circulation on 1 January 2002.

The currency was established through Treaty provisions and secondary legislation. Its legal framework is not based on a conventional agreement between independent states to use a shared foreign currency. Rather, the euro is the single currency of participating EU Member States, operating within a supranational institutional system.

Article 3(1)(c) of the Treaty on the Functioning of the European Union (TFEU) gives the European Union exclusive competence in monetary policy for Member States whose currency is the euro. This means that participating states cannot independently determine the monetary policy applicable to the euro area or issue competing national monetary policies.

The distinction between monetary and economic policy is fundamental. Monetary policy is conducted centrally through the Eurosystem, whereas Member States retain significant responsibility for their national economic and fiscal policies, subject to coordination and common rules under the Treaties.

The euro therefore has a dual legal and institutional character. It is:

• The official currency of the participating Member States.
• The monetary unit used by the European Central Bank and the Eurosystem.
• A currency with legal-tender status under EU law.
• A common monetary instrument supporting the internal market and cross-border economic activity.
• A central element of the constitutional and institutional structure of Economic and Monetary Union.

The principal Treaty provisions governing the monetary framework appear in Articles 127–133 TFEU, while Articles 139–144 address transitional arrangements and Member States that have not yet adopted the euro.

The most important secondary legislation includes Council Regulation (EC) No 974/98 on the introduction of the euro and Council Regulation (EC) No 1103/97 on certain provisions relating to its introduction. These instruments establish rules concerning currency substitution, continuity of legal instruments, conversion, and the use of the euro.

The relevant legislation is available through EUR-Lex.

3. The Euro Area and the European Union: Two Different Legal Categories

The European Union and the euro area are not legally identical.

The European Union comprises all Member States. The euro area consists of those Member States that have adopted the euro and participate fully in the common monetary policy.

As of November 2026, the 21 euro-area countries are:

Austria, Belgium, Bulgaria, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

Six Member States remain outside the euro area: Czechia, Denmark, Hungary, Poland, Romania, and Sweden.

This distinction has practical and institutional consequences. All Member States participate in the EU’s internal market and are subject to the general framework of economic policy coordination. However, only euro-area states participate fully in the common monetary policy and in the decision-making arrangements reserved for members of the currency union.

Under Article 139 TFEU, Member States that have not yet adopted the euro are classified as Member States with a derogation. Certain Treaty provisions concerning the objectives and tasks of the European System of Central Banks, the issuance of euro currency, and monetary policy do not apply to them in the same way as they apply to euro-area states.

Their national currencies remain in use, and their national central banks retain monetary responsibilities within the limits established by EU law.

The derogation does not generally represent a permanent exemption from adopting the euro. The Treaties establish the expectation that Member States will adopt the common currency once they satisfy the necessary conditions. Denmark is the exception because it negotiated a specific opt-out.

The distinction also explains why a state can be a full member of the European Union while retaining its own currency. Membership of the internal market does not automatically produce membership of the euro area.

4. The Legal Foundations of the Euro

The euro’s legal status rests on several interconnected Treaty provisions.

Article 119 TFEU: Economic and Monetary Union

Article 119 establishes the general framework of economic and monetary policy within the Union. It provides for close coordination of Member States’ economic policies, the internal market, and a single monetary policy and exchange-rate policy for those Member States whose currency is the euro.

The provision reflects the central principle that monetary integration requires a common institutional structure. National governments cannot independently conduct monetary policy for a currency shared with other states.

Article 127 TFEU: Monetary Policy Objectives

Article 127 defines the primary objective of the European System of Central Banks as maintaining price stability.

Without prejudice to this objective, the ESCB supports the general economic policies in the Union, contributing to the achievement of the Union’s objectives.

The provision gives monetary policy a defined legal purpose. It also establishes that the ECB’s monetary authority is not simply an administrative function. It is a Treaty-based competence exercised within a framework of institutional independence and judicial accountability.

Article 128 TFEU: Banknotes and Currency Issuance

Article 128 establishes the ECB’s exclusive right to authorise the issuance of euro banknotes within the Union.

The ECB and national central banks may issue euro banknotes, but the authority to authorise their issuance belongs exclusively to the ECB. The Treaty also provides that euro banknotes issued by the ECB and national central banks are the only banknotes to have legal-tender status within the Union.

Euro coins are governed by a related but distinct arrangement. Member States may issue euro coins, subject to ECB approval of the volume of issuance. Their denominations and technical specifications are subject to common European rules.

This arrangement preserves a role for national authorities in coin issuance while ensuring that the currency remains a single monetary system.

Article 133 TFEU: Measures Governing the Use of the Euro

Article 133 authorises the European Parliament and the Council, acting under the ordinary legislative procedure and after consulting the ECB, to adopt measures necessary for the use of the euro as the single currency.

This provision provides the legislative foundation for common rules governing the practical operation of the currency. It is particularly important where uniformity is necessary to protect the functioning of the monetary system and the integrity of the internal market.

Article 140 TFEU: Adoption of the Euro

Article 140 establishes the procedure for determining whether a Member State with a derogation fulfils the conditions for adopting the euro.

It requires the Commission and the ECB to assess economic and legal convergence and provides the institutional procedure through which the Council may abrogate a Member State’s derogation.

Together, these provisions create a legal framework in which the euro is not merely an economic convenience but a currency with a defined constitutional and institutional status.

5. The Euro as Legal Tender

Legal tender is one of the most important legal characteristics of a currency.

In general terms, legal tender is a legally recognised means of discharging a monetary obligation. When a debtor offers payment in the currency that has legal-tender status, the creditor is ordinarily required to accept it, subject to applicable legal exceptions.

Within the euro area, the euro is the currency with legal-tender status. Its banknotes and coins are recognised under EU law as the standard means of discharging monetary obligations.

The legal foundations differ slightly between banknotes and coins.

Article 128(1) TFEU governs the legal-tender status of euro banknotes. Article 11 of Regulation (EC) No 974/98 provides that euro banknotes and coins issued by participating Member States are the only banknotes and coins that have legal-tender status in those states.

The European Commission has explained the practical consequences of legal tender through three principal elements:

Mandatory acceptance. A creditor should ordinarily accept euro cash in settlement of a monetary obligation, unless an applicable agreement or recognised legal exception permits another arrangement.

Acceptance at full face value. A euro banknote or coin must be accepted at the monetary value indicated on it. A creditor cannot ordinarily impose a lower value merely because the payment is made in cash.

Power to discharge a payment obligation. The debtor can discharge the monetary obligation by properly tendering payment in euro cash, subject to the applicable rules governing payment.

These principles were examined by the Court of Justice in Johannes Dietrich and Norbert Häring v Hessischer Rundfunk, Joined Cases C-422/19 and C-423/19, decided on 26 January 2021.

The proceedings concerned German legislation requiring certain public broadcasting fees to be paid by means other than cash. The claimants argued that the restriction was incompatible with the legal-tender status of euro banknotes.

The Court clarified that the concept of legal tender ordinarily entails mandatory acceptance of euro banknotes, acceptance at full face value, and the power to discharge payment obligations.

However, the Court also recognised that restrictions on cash payments may be permissible in certain circumstances. Such restrictions must pursue a legitimate public-interest objective and must be proportionate. They cannot undermine the essential legal-tender status of euro banknotes.

The judgment is important because it distinguishes between the legal status of a currency, which falls within the EU’s monetary competence, and national regulatory measures that may affect the practical means through which public obligations are paid.

The decision does not establish an unconditional right to pay every obligation in cash regardless of circumstances. Contractual arrangements, administrative requirements, public-interest objectives, and proportionality remain relevant.

The judgment is available through EUR-Lex.

6. Banknotes, Coins, and the Uniformity of the Currency

Although the euro is a single currency, its physical issuance involves both European and national institutions.

Euro banknotes are governed by a centralised authorisation system. The ECB has the exclusive right to authorise their issuance, while the ECB and national central banks may issue them.

The banknotes are designed according to common specifications. Their denominations, security features, and physical characteristics are intended to ensure that a banknote issued in one euro-area country can circulate throughout the entire currency area.

Euro coins follow a somewhat different model.

Participating Member States may issue coins, but the volume of issuance requires ECB approval. Common denominations and technical specifications ensure that coins remain interchangeable and usable throughout the euro area.

Euro coins generally have a common European side and a national side. The national side may contain symbols, historical figures, or cultural references selected by the issuing state. However, national design differences do not create separate currencies or different monetary values.

A euro coin issued by one Member State has the same nominal value as a corresponding coin issued by another.

The legal framework therefore combines central monetary control with limited national participation in the physical representation of the currency.

This arrangement is significant from a constitutional perspective. Member States retain a degree of cultural expression through coin design, but they cannot use that power to undermine the uniformity of the euro.

7. The Procedure for Adopting the Euro

Adopting the euro is a formal legal process. A Member State cannot introduce the currency unilaterally simply because its government considers the economic circumstances favourable.

The procedure is governed primarily by Article 140 TFEU.

The objective is to ensure that a country is sufficiently prepared to participate in a common monetary system without creating serious economic or institutional instability.

The assessment involves both economic convergence and legal compatibility.

7.1 Convergence Reports

Article 140 requires the European Commission and the ECB to examine the progress made by Member States with a derogation towards fulfilling their obligations concerning Economic and Monetary Union.

The reports are prepared at least once every two years or at the request of a Member State seeking to adopt the euro.

They assess whether the country satisfies the convergence criteria and whether its national legislation is compatible with the EU monetary framework.

The Commission and the ECB prepare separate reports within their respective responsibilities. Their assessments are central to the Council’s decision.

The procedure is not merely a political evaluation. It is based on economic indicators, legal requirements, and the institutional independence of the national central bank.

7.2 The Four Economic Convergence Criteria

The Maastricht convergence criteria are designed to assess whether a national economy is sufficiently stable to participate in the euro area.

Price stability

The inflation rate of the candidate state must not exceed by more than 1.5 percentage points the average inflation rate of the three best-performing Member States in terms of price stability.

The assessment considers the sustainability of price stability, not merely a favourable inflation figure during a short period.

A country experiencing temporarily low inflation because of exceptional economic circumstances may still raise concerns about whether its price performance is sustainable.

Sound public finances

The candidate state must not be subject to a Council decision establishing the existence of an excessive deficit under Article 126 TFEU.

The assessment considers the government’s budgetary position and public debt.

The Treaty reference values are:

• A government deficit of 3% of GDP.
• Government debt of 60% of GDP.

These values are not applied as isolated mathematical tests. The legal assessment also considers whether the deficit or debt is declining sufficiently and whether the relevant fiscal position is sustainable.

The existence of a public debt level above 60% does not automatically make euro adoption impossible. The assessment must take account of the Treaty framework and the applicable fiscal rules.

Exchange-rate stability

The candidate state must participate in the Exchange Rate Mechanism II (ERM II) for at least two years before the examination.

During that period, its currency must not experience severe tensions, and the Member State must not devalue its bilateral central rate against the euro on its own initiative.

ERM II is intended to demonstrate that the national currency can maintain a sufficiently stable relationship with the euro before the country joins the monetary union.

Convergence of long-term interest rates

The candidate state’s average long-term nominal interest rate must not exceed by more than two percentage points the average of the three best-performing Member States in terms of price stability.

This criterion examines whether financial markets consider the country’s economic and monetary position sufficiently stable.

A substantial difference in long-term interest rates may indicate concerns about inflation, public finances, financial stability, or the credibility of national economic policy.

7.3 Legal Convergence

Economic performance alone is insufficient.

The candidate state’s national legislation must be compatible with the Treaties and the Statute of the European System of Central Banks and of the European Central Bank.

The assessment focuses particularly on:

• The independence of the national central bank.
• The independence of the members of its decision-making bodies.
• The central bank’s statutory objectives.
• The prohibition of monetary financing.
• The integration of the national central bank into the Eurosystem.
• Compatibility with the ECB’s powers and responsibilities.

Article 130 TFEU is particularly important because it protects the independence of the ECB and national central banks when performing their monetary functions.

National governments cannot instruct central banks to conduct monetary policy according to short-term political preferences.

The legal-convergence requirement ensures that a state entering the euro area has already established the institutional conditions necessary for participation in a common monetary system.

8. The Council Decision and the Abrogation of a Derogation

After receiving the Commission’s and ECB’s assessments, the Council determines whether the Member State fulfils the necessary conditions for adopting the euro.

The procedure involves several institutional stages.

The Commission submits a proposal, and the Council receives a recommendation from the Member States whose currency is the euro. The European Parliament is consulted, and the matter is discussed by the European Council.

The final decision is taken by the Council in accordance with Article 140 TFEU.

Where the conditions are fulfilled, the Council adopts a decision abrogating the Member State’s derogation.

This is a legally significant act. It changes the Member State’s position within the monetary framework and removes the special transitional status under which it previously operated.

The Council also adopts the necessary measures concerning the introduction of the euro and the irrevocable conversion rate between the euro and the national currency.

The conversion rate is established through a separate legal act based on Article 140(3) TFEU.

The process therefore involves more than an announcement of political support. It requires formal legal decisions that establish the country’s participation in the common currency.

9. The Exchange Rate Mechanism II

ERM II is an important transitional mechanism for countries preparing to adopt the euro.

It provides a framework for maintaining exchange-rate stability between a participating national currency and the euro.

A country entering ERM II agrees to a central exchange rate against the euro, around which an agreed fluctuation band applies. The standard band is generally plus or minus 15%, although narrower arrangements may be agreed.

The mechanism is intended to demonstrate that the national currency can maintain stability without severe market pressure or unilateral devaluation.

Participation in ERM II does not mean that the country has already adopted the euro. It remains outside the euro area and continues to use its national currency.

The national central bank also retains its monetary responsibilities, although the exchange-rate arrangement creates constraints on the conduct of national monetary policy.

The two-year participation requirement is a formal element of the convergence assessment. However, the examination is not limited to checking whether the calendar period has elapsed. The authorities must also consider whether the currency has remained stable under the applicable conditions.

ERM II therefore serves as a transitional mechanism between national monetary arrangements and full participation in the euro area.

10. The Legal Consequences of Replacing a National Currency

The adoption of the euro affects nearly every area of economic and financial activity.

Contracts, bank accounts, salaries, pensions, taxes, public debts, company accounts, court judgments, and administrative obligations may all contain monetary amounts expressed in the former national currency.

Without clear legal rules, the replacement of a currency could create uncertainty about whether existing obligations remain valid.

EU law addresses this problem through the principle of continuity of contracts and other legal instruments.

10.1 Continuity of Legal Instruments

Council Regulation (EC) No 1103/97 establishes that the introduction of the euro does not alter the terms of legal instruments.

The replacement of a national currency cannot, by itself, invalidate an existing contract or change the substantive rights and obligations of the parties.

For example, a loan agreement expressed in the former national currency does not cease to exist when the euro is introduced. The monetary amounts must be converted according to the legally established conversion rate.

The same principle applies to employment contracts, leases, insurance policies, commercial agreements, public liabilities, and other legal instruments.

The conversion of the currency is not a renegotiation of the underlying legal relationship.

A debtor remains responsible for the same contractual obligation, although the amount is expressed in the new monetary unit.

The principle protects both contractual stability and legitimate expectations.

10.2 Conversion Rates

When a Member State adopts the euro, the Council establishes an irrevocable conversion rate between the national currency and the euro.

This rate becomes the legally authoritative basis for converting monetary amounts.

The conversion rate must be expressed using six significant figures. It cannot be rounded or truncated during the conversion process.

The distinction between significant figures and decimal places is important. A conversion rate containing six significant figures is not necessarily expressed with six digits after the decimal point.

For example, Bulgaria’s conversion rate was fixed at:

€1 = BGN 1.95583

The rate reflects the central rate previously maintained under ERM II.

The conversion must be performed using the official rate rather than an approximate market exchange rate or a privately selected calculation.

10.3 Rounding Rules

After conversion, the resulting euro amount may be rounded to the nearest cent according to the rules established by Regulation 1103/97.

Where the third decimal place is below five, the second decimal place remains unchanged.

Where the third decimal place is five or above, the second decimal place is increased by one.

For example:

• €12.344 becomes €12.34.
• €12.345 becomes €12.35.

The conversion rate itself must not be rounded or truncated before the calculation. Rounding is applied to the resulting amount.

National rules may provide for greater precision in certain situations, particularly where the calculation involves unit prices or financial obligations that require more accurate measurement.

10.4 Continuity of Bank Accounts and Financial Obligations

Bank accounts are converted into euro without requiring the parties to enter into entirely new banking agreements.

Existing deposits, loans, credit obligations, and payment arrangements continue under the relevant contractual and regulatory framework.

The conversion does not automatically alter the interest rate, maturity date, repayment schedule, or other substantive contractual terms.

Financial institutions must apply the legally established conversion rate and relevant rounding rules.

This principle is particularly important for long-term obligations such as mortgages, corporate financing, insurance contracts, and pension arrangements.

10.5 Public Administration and Judicial Decisions

The principle of continuity also applies to public-law relationships.

Tax liabilities, social security contributions, public benefits, administrative fines, and judicial awards may need to be expressed in euro following the changeover.

The introduction of the euro does not automatically extinguish a debt owed to a public authority or invalidate a judicial decision expressed in the former national currency.

The relevant amounts are converted under the applicable rules.

This ensures that the change of currency does not undermine legal certainty or disrupt the administration of justice.

11. Regulation (EC) No 974/98 and the Introduction of the Euro

Council Regulation (EC) No 974/98 provides the principal framework for introducing the euro as the currency of participating Member States.

It governs the transition from national currencies to the common currency and establishes rules concerning the replacement of national monetary units, the circulation of banknotes and coins, and the transitional arrangements.

The regulation distinguishes between the euro as the monetary unit and the practical circulation of euro cash.

During the initial period of monetary union, the euro existed as the common monetary unit while national banknotes and coins continued to circulate.

When euro banknotes and coins were introduced, the national currency units were progressively withdrawn.

For later euro adopters, the changeover arrangements are determined by the applicable legislation and national implementation measures, within the framework of Regulation 974/98.

A Member State may have a short period of dual circulation during which both the euro and the former national currency are accepted as legal tender. The precise arrangements depend on the relevant adoption legislation.

The regulation is particularly important because it ensures that the replacement of national currencies occurs under a common legal framework rather than through independent national monetary measures.

12. Bulgaria’s Adoption of the Euro: A Case Study

Bulgaria’s adoption of the euro on 1 January 2026 provides a recent example of the Treaty procedure in operation.

Bulgaria joined the European Union on 1 January 2007. Under its accession arrangements, it undertook to adopt the euro once the necessary conditions were fulfilled.

Unlike Denmark, Bulgaria did not have a permanent opt-out from the common currency.

For many years, Bulgaria maintained a currency-board arrangement under which the lev was fixed against the euro at the rate of BGN 1.95583 for €1. This arrangement contributed to exchange-rate stability, although it did not itself amount to participation in the euro area.

Bulgaria joined ERM II on 10 July 2020. It subsequently underwent the economic and legal assessments required by Article 140 TFEU.

12.1 The Convergence Assessment

On 4 June 2025, the European Commission and the ECB published their convergence assessments.

The reports concluded that Bulgaria fulfilled the necessary conditions for adopting the euro.

The assessment examined price stability, public finances, exchange-rate stability, long-term interest rates, and the compatibility of Bulgarian legislation with the requirements of Economic and Monetary Union.

The reports also considered the sustainability of convergence, rather than treating compliance with individual numerical indicators as sufficient in isolation.

The Council subsequently adopted Decision (EU) 2025/1407 of 8 July 2025.

The decision formally established that Bulgaria fulfilled the necessary conditions for adopting the euro and provided that the derogation applicable to Bulgaria would be abrogated with effect from 1 January 2026.

12.2 The Fixed Conversion Rate

Council Regulation (EU) 2025/1409 amended Regulation (EC) No 2866/98 to establish the conversion rate for Bulgaria.

The legally fixed rate was:

€1 = BGN 1.95583

This rate corresponds to the central rate previously maintained under ERM II.

The conversion rate was not a new market valuation of the lev. It was the legally established rate through which the national monetary unit was replaced by the euro.

12.3 The Changeover

On 1 January 2026, Bulgaria became the twenty-first Member State to adopt the euro.

Euro banknotes and coins acquired legal-tender status, and the Bulgarian National Bank became part of the Eurosystem.

A one-month dual-circulation period allowed both euro and lev cash to circulate temporarily. The lev was subsequently withdrawn from ordinary cash circulation, while the exchange of former national currency remained subject to the applicable legal arrangements.

Dual price display had been compulsory from 8 August 2025 until 8 August 2026. This measure was designed to help consumers compare prices during the transition and identify unjustified increases.

The changeover also required adjustments to banking systems, payment services, public accounting, tax administration, and private contracts.

The Commission’s report of 30 April 2026 examined the introduction of the euro in Bulgaria and the practical implementation of the changeover.

The Bulgarian example demonstrates that euro adoption is a legal and institutional process extending beyond the replacement of physical currency. It requires coordination between European institutions, the national central bank, public authorities, financial institutions, businesses, and consumers.

13. The Role of the European Central Bank and National Central Banks

The euro is administered through the Eurosystem, which consists of the ECB and the national central banks of the Member States whose currency is the euro.

The Eurosystem is responsible for implementing the single monetary policy.

The ECB determines the monetary policy framework, while national central banks carry out operational functions in accordance with the rules and instructions established by the ECB.

National central banks do not retain independent authority to determine national monetary policy once their countries adopt the euro.

They nevertheless remain important institutions within the common system. They participate in monetary operations, contribute to the implementation of policy, manage aspects of currency circulation, and perform other tasks assigned under the Treaties and the ECB framework.

The distinction between the Eurosystem and the European System of Central Banks (ESCB) remains important.

The ESCB consists of the ECB and the national central banks of all EU Member States, including those that have not adopted the euro.

The Eurosystem includes only the ECB and the national central banks of euro-area countries.

The euro therefore creates a differentiated institutional structure within the Union: all national central banks belong to the ESCB, but only those of euro-area states participate fully in the Eurosystem.

14. The Euro and National Economic Sovereignty

The adoption of the euro has substantial constitutional consequences.

A Member State that adopts the common currency no longer controls its own monetary policy in the conventional national sense.

It cannot independently:

• Set a national policy interest rate for its currency.
• Issue a separate national currency.
• Devalue its currency against the euro.
• Conduct an independent exchange-rate policy within the monetary union.
• Determine national monetary conditions independently of the ECB.

These powers are exercised through the common monetary framework.

However, adopting the euro does not eliminate national economic sovereignty in every respect.

Member States retain responsibility for taxation, public expenditure, labour-market regulation, social policy, education, and many aspects of economic administration, subject to EU law and the coordination mechanisms established by the Treaties.

Fiscal policy remains primarily national, although it is constrained by common rules and surveillance mechanisms.

The relationship between monetary integration and national sovereignty is therefore one of divided authority rather than complete centralisation.

The euro transfers a significant and carefully defined area of public power to the European level while preserving national responsibilities in other fields.

This arrangement is one of the defining characteristics of the European constitutional order.

15. The Euro and the Internal Market

The euro supports the functioning of the internal market by removing exchange-rate uncertainty between participating states and reducing the costs associated with currency conversion.

Before monetary union, businesses operating across national borders had to account for fluctuations between national currencies. Exchange-rate changes could affect the value of contracts, investment decisions, prices, and commercial obligations.

A single currency eliminates this particular source of uncertainty between euro-area countries.

It also makes price comparisons easier for consumers and businesses. A product sold in France, Germany, Bulgaria, or Spain can be compared directly in the same monetary unit without first converting prices between national currencies.

The euro also facilitates cross-border payments, financial integration, and investment.

However, the common currency does not eliminate all barriers to economic activity. Differences in taxation, national regulation, labour costs, administrative procedures, and market structures remain relevant.

The euro is therefore an important instrument of integration, but it does not create a completely uniform economic environment.

16. Legal Limits and Institutional Accountability

The euro’s legal framework is subject to the principles of conferral, institutional balance, proportionality, and judicial review.

The ECB exercises powers granted by the Treaties. It cannot act outside its legal mandate merely because a particular measure might be economically desirable.

Its primary monetary objective is price stability, although the Treaties also provide for support of the Union’s general economic policies without prejudice to that primary objective.

The Court of Justice has an important role in reviewing the legality of monetary measures.

In Gauweiler and Others, Case C-62/14, the Court examined the ECB’s Outright Monetary Transactions programme and considered the boundaries between monetary policy and economic policy.

In Weiss and Others, Case C-493/17, the Court considered the ECB’s public sector purchase programme and the legal conditions governing the exercise of its monetary powers.

These judgments demonstrate that monetary policy is not an area outside the rule of law. The ECB enjoys institutional independence, but its actions remain subject to the Treaties and judicial scrutiny.

The legal framework also requires transparency and accountability. The ECB reports to the European Parliament and participates in institutional dialogue concerning its activities.

The euro is therefore governed by a system in which independence and accountability operate together.

17. The Digital Dimension of the Euro

The legal concept of the euro is not limited to physical banknotes and coins.

Most modern monetary transactions take place through electronic banking systems, payment cards, transfers, and account-based financial services.

These forms of payment represent claims and transfers denominated in euro, even though no physical banknotes or coins change hands.

The distinction between cash and electronic money is important.

Euro banknotes and coins have the specific legal-tender status established under Article 128 TFEU and Regulation 974/98. Electronic payment methods operate through payment-service arrangements, account relationships, and applicable financial regulation.

The ECB has also been examining the possibility of introducing a digital euro.

A digital euro would be a form of central bank money intended to complement cash rather than replace it. Its legal and institutional design raises questions concerning privacy, payment infrastructure, financial stability, access to public money, and the relationship between central bank money and private payment services.

The development of a digital euro illustrates the continuing evolution of monetary law. The central legal question is not simply whether payments become electronic, but how public money should be defined, issued, protected, and made accessible in a changing technological environment.

The legal status of any future digital euro must be determined through the relevant EU legislative and institutional framework.

18. Practical Legal Examples

Example 1: A company contract expressed in a former national currency

A Bulgarian company entered into a long-term commercial contract before 1 January 2026. The contract expressed the payment obligation in Bulgarian lev.

The introduction of the euro did not automatically invalidate the agreement or require the parties to negotiate a replacement contract. The monetary amount was converted according to the legally fixed conversion rate and applicable rounding rules.

The underlying contractual obligation continued.

Example 2: Refusal to accept euro cash

A consumer attempts to pay an ordinary monetary obligation in euro banknotes, but the creditor refuses to accept cash.

The legal position must be assessed under the rules governing legal tender and any applicable exceptions. Under the principles explained in Hessischer Rundfunk, acceptance of euro cash is ordinarily required, but restrictions may be justified in certain circumstances if they pursue a legitimate public-interest objective and satisfy proportionality.

Example 3: A Member State seeking to adopt the euro

A Member State has maintained stable exchange rates and achieved low inflation but has not completed the required two-year participation in ERM II.

It cannot simply declare itself part of the euro area. The exchange-rate stability criterion remains part of the legal assessment under Article 140 TFEU.

Example 4: A national central bank receives instructions from its government

A government attempts to instruct its national central bank to lower interest rates for electoral or short-term political reasons after the state has adopted the euro.

Such instructions would conflict with the independence requirements of Article 130 TFEU and the institutional framework of the Eurosystem.

Example 5: A mortgage agreement following currency conversion

A mortgage was concluded in a national currency before the introduction of the euro. Following adoption, the outstanding principal is converted into euro.

The conversion does not automatically change the contractual interest rate, repayment period, or other substantive conditions. The conversion must follow the applicable EU rules and the relevant national implementing provisions.

19. Key Takeaways

• The euro is the single currency of 21 EU Member States as of November 2026.
• Bulgaria became the twenty-first euro-area member on 1 January 2026.
• The legal foundations of the euro are found primarily in Articles 119–144 TFEU.
• Article 128 TFEU governs the issuance and legal-tender status of euro banknotes.
• Article 11 of Regulation (EC) No 974/98 establishes the legal-tender status of euro coins.
• Legal tender ordinarily entails mandatory acceptance, acceptance at full face value, and the ability to discharge monetary obligations.
• Article 140 TFEU establishes the procedure for assessing whether a Member State may adopt the euro.
• The convergence criteria concern price stability, public finances, exchange-rate stability, and long-term interest-rate convergence.
• Legal convergence requires compatibility of national central-bank legislation with the Treaties and the ECB framework.
• ERM II participation for at least two years is required before adoption.
• The Council formally abrogates the derogation and establishes the necessary legal arrangements for introducing the euro.
• Regulation (EC) No 1103/97 protects continuity of contracts and establishes conversion and rounding rules.
• The introduction of the euro does not automatically invalidate existing contracts or extinguish monetary obligations.
• Denmark has a specific Treaty-based opt-out, while other Member States remain subject to the general framework for future euro adoption.
• The ECB and the Eurosystem exercise monetary authority under the Treaties, subject to legal limits and judicial review.

20. Frequently Asked Questions

1. Is the euro the official currency of the entire European Union?

No. The euro is the official currency of 21 EU Member States. Other Member States retain their national currencies, although they participate in the broader framework of Economic and Monetary Union.

2. Does every EU Member State have to adopt the euro?

In principle, yes, once the necessary conditions are fulfilled. Denmark is the exception because it has a specific Treaty-based opt-out.

3. What are the Maastricht convergence criteria?

They are the economic and legal conditions for adopting the euro. They concern price stability, sound public finances, exchange-rate stability, long-term interest-rate convergence, and compatibility of national legislation with the EU monetary framework.

4. What is the role of ERM II?

ERM II is an exchange-rate mechanism through which a candidate state demonstrates stability between its national currency and the euro. Participation for at least two years is required before adoption.

5. Who decides whether a country can adopt the euro?

The Council of the European Union takes the formal decision under Article 140 TFEU, following the required assessments and institutional consultations.

6. Can a creditor refuse euro cash?

As a general principle, euro banknotes and coins must be accepted in settlement of monetary obligations. However, certain restrictions may be permitted where they have a legitimate justification and comply with proportionality and applicable EU law.

7. Does adopting the euro invalidate existing contracts?

No. Regulation (EC) No 1103/97 protects the continuity of legal instruments. Monetary amounts are converted according to the official conversion rate, but the underlying contractual obligations generally remain unchanged.

8. Can a Member State independently change the value of the euro?

No. The euro is governed by the common monetary framework. A euro-area Member State cannot independently devalue the euro or conduct a separate national monetary policy.

9. What happened when Bulgaria adopted the euro?

Bulgaria adopted the euro on 1 January 2026 at the fixed conversion rate of €1 = BGN 1.95583. Its derogation was abrogated, the Bulgarian National Bank joined the Eurosystem, and the euro became the country’s official currency.

10. Is the euro only physical cash?

No. The euro is a monetary unit used for cash and electronic transactions. Euro banknotes and coins have a specific legal-tender status, while electronic payments operate through banking and payment-service arrangements.

21. Conclusion

The euro is one of the most significant legal and institutional achievements of European integration. Its existence depends on a carefully constructed system of Treaty provisions, EU regulations, independent monetary institutions, common currency rules, and formal procedures for admitting new Member States.

Its legal status is particularly important because a common currency requires more than a shared name or a common exchange rate. It requires uniform rules concerning issuance, legal tender, monetary authority, conversion, contractual continuity, and the discharge of financial obligations.

The procedure for adopting the euro reflects the same principle. A Member State must demonstrate economic stability and legal compatibility before entering the monetary union. The Council’s decision to abrogate a derogation is therefore a formal constitutional step that changes the country’s position within the European monetary system.

Bulgaria’s adoption in January 2026 demonstrates how this framework operates in practice. The transition required economic assessment, legal adaptation, institutional preparation, a fixed conversion rate, and the protection of existing private and public obligations.

Ultimately, the euro represents a distinctive form of shared sovereignty. Participating states retain their national institutions and substantial responsibility for domestic economic policy, but monetary authority is exercised through a common European framework. This arrangement creates both opportunities and constraints, making the legal structure of the euro essential to understanding the contemporary European Union.

22. Primary Legal Sources and Further Reading

Treaty provisions

• Treaty on the Functioning of the European Union – Articles 119–144
• Article 128 TFEU – Issuance and legal-tender status of euro banknotes
• Article 130 TFEU – Independence of the ECB and national central banks
• Article 140 TFEU – Examination of convergence and adoption of the euro

EU legislation

• Council Regulation (EC) No 974/98 on the introduction of the euro
• Council Regulation (EC) No 1103/97 on certain provisions relating to the introduction of the euro
• Council Regulation (EC) No 2866/98 on the conversion rates between the euro and the currencies of the Member States adopting the euro
• Council Decision (EU) 2025/1407 on the adoption by Bulgaria of the euro on 1 January 2026
• Council Regulation (EU) 2025/1409 establishing the conversion rate for Bulgaria

Court of Justice of the European Union

• Dietrich and Häring v Hessischer Rundfunk, Joined Cases C-422/19 and C-423/19
• Gauweiler and Others, Case C-62/14
• Weiss and Others, Case C-493/17

Institutional resources

• European Commission – EU countries and the euro
• European Commission – The euro as legal tender
• European Commission – Convergence Reports
• Council of the European Union – Joining the euro area
• European Central Bank – The euro