The Treaty lays out the procedures and timing for deciding on a conversion rate from a national currency to the euro. How the conversion rate is applied is also of great importance to make sure people have trust in the new, single currency, and to ensure the continuity of contracts and other legal instruments.
The Commission and the European Central Bank issue regular convergence reports for those Member States which have not yet adopted the euro – except Denmark and the United Kingdom. Reports are produced at least once every two years, or at the request of a Member State seeking entry to the euro area.
Based on a proposal from the Commission, the Council, after consulting the European Parliament and discussions at the level of heads of state and government, approves the Member State’s entry to the euro area. The conversion rate is then adopted by the Council, on the basis of a Commission proposal and after consulting the European Central Bank, and thereby becomes irrevocably fixed.
The irrevocable conversion rate is usually set at the central rate observed by the national currency within the Exchange Rate Mechanism (ERM II). Participation in ERM II for at least two years without severe tensions is one of the preconditions a Member State must meet for adopting the euro. It therefore provides the best reference for the fixing of the conversion rate.
Conversion and rounding rules
The way the conversion rates must be expressed and applied is laid down in a Council Regulation (1103/97), the aim of which is to ensure fairness and continuity of contracts and other legal instruments ('legal certainty') during the changeover. It sets out the specific conversion and rounding rules to be respected:
- Introduction of the euro may not alter the terms of legal instruments, for example mortgage agreements for house purchases or sales agreements between companies. This ensures continuity in all financial transactions.
- The conversion rate from national currency to the euro is expressed with 6 significant figures – not to be confused with 6 decimal points – for example SIT 239.640 equals €1. When conversions are made, it is prohibited to round or truncate the conversion rate. This ensures the exactness of conversion operations.
- Once the conversion from the national currency has been made, then the euro amount can be rounded up or down to the nearest euro cent: if the number in the third decimal place is less than 5, the second decimal remains unchanged (for example, €1.264 becomes €1.26); but if the third decimal is 5 or above, then the second decimal must be rounded up, for example €1.265 becomes €1.27.
- National law can bring more detail to rules on rounding as long as this leads to a higher degree of accuracy. For example, some groups of services that are sold in units, such as the telephone, electricity or fuel, may require greater precision. In this case, their unit price could be expressed in three or four decimal places and rounding to the nearest cent may only take place on the total amount.
- Bilateral conversion rates between national currency units are not defined and cannot be used since this may lead to inaccuracies. To convert from one national currency into another, the national currency must first be converted into euro. The resulting amount will be rounded to at least three decimals and then converted into the other national currency.
Fixed euro conversion rates
| Euro-area Member State | Old national currency | Conversion rate to €1 |
|---|---|---|
| Belgium | Belgian franc (BEF) | 40.3399 |
| Germany | German mark (DEM) | 1.95583 |
| Ireland | Irish pound (punt) (IEP) | 0.787564 |
| Greece | Greek drachma (GRD) | 340.750 |
| Spain | Spanish peseta (ESP) | 166.386 |
| France | French franc (FRF) | 6.55957 |
| Italy | Italian lira (ITL) | 1936.27 |
| Cyprus | Cyprus pound | 0.585274 |
| Luxembourg | Luxembourg franc (LUF) | 40.3399 |
| Malta | Maltese lira (MTL) | 0.429300 |
| The Netherlands | Dutch guilder (NLG) | 2.20371 |
| Austria | Austrian schilling (ATS) | 13.7603 |
| Portugal | Portugese escudo (PTE) | 200.482 |
| Slovenia | Slovenian tolar (SIT) | 239.640 |
| Slovakia | Slovak koruna (SKK) | 30.1260 |
| Finland | Finnish markka (FIM) | 5.94573 |
