Eurozone

Related Topics:
Eurozone

The Eurozone (also called Euro Area, Eurosystem or Euroland) is the subset of European Union member states which have adopted the euro, creating a currency union. The European Central Bank is responsible for the monetary policy within the eurozone.

Countries with the euro as currency

Euro accession.PNG|thumb|300px|

States outside the EU using the euro are shown with blue crosshatching.]]

Official members

In 1998 11 EU member-states had met the convergence criteria, and the Eurozone came into existence with the official launch of the euro on 1 January 1999; Greece qualified in 2000 and was admitted on 1 January 2001, bringing total Eurozone membership to its current level of twelve member states: Austria, Belgium, Finland, France (except Pacific territories using CFP franc), Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. Their combined population is over 307 million people.

Nations with formal agreements with the EU

Monaco, San Marino, and Vatican City also use the euro, although they are not officially euro members nor members of the EU. (They previously used currencies that were replaced by the euro.) They now mint their own coins, with their own national symbols on the obverse. These countries use the euro by virtue of agreements concluded with EU member states (Italy in the case of San Marino and Vatican City, France in the case of Monaco), on behalf of the European Community.

Nations without formal agreements with the EU

Andorra does not have an official currency and hence no specific euro coins. It previously used the French franc and Spanish peseta as de facto legal tender currency. There has never been a monetary arrangement with either Spain or France; however, the EU and Andorra are currently in negotiations regarding the official status of the euro in Andorra. According to Andorran officials, Andorra would have minted its own euro coins for the first time in 2006; as of January 2006, this seems highly unlikely, as the negotiations have been stalling since at least December 2005.

Likewise, Montenegro and Kosovo, which used to have the German mark as their de facto currency, also adopted the euro without having entered into any legal arrangements with the EU explicitly permitting them to do so. Kosovo uses the euro instead of the Serbian dinar, mainly for political reasons.

As of 1 December, 2002, North Korea has replaced the US dollar with the euro as its official currency for international trading. (Its internal currency, the won, is not convertible and thus cannot be used to purchase foreign goods.) The euro also enjoys popularity domestically, especially among resident foreigners.

Prior to the 2003 Invasion of Iraq, President Saddam Hussein announced that he intended to price Iraqi oil in euros, rather than US dollars, since the majority of Iraqi oil trade is with the EU, India and the People's Republic of China, not with the USA.

Non-Eurozone EU countries

Euro outside.PNG|thumb|300px|

]]

The other 13 countries of the European Union that do not use the euro are: Denmark, Sweden, the United Kingdom, and the ten member states that joined the Union on 1 May 2004; namely Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia.

Denmark and the United Kingdom got special derogations in the original Maastricht Treaty of the European Union. Both countries are not legally required to join the Eurozone unless their governments decide otherwise, either by parliamentary vote or referendum. Sweden, however, did not, and is technically obliged to introduce the euro at some point in the future.

Inside ERM II

As of 1 May 2004, the ten National Central Banks (NCBs) of the new member countries are party to the second European Exchange Rate Mechanism (ERM II) ^*. The following table shows the dates when each member state became a full participant in the ERM II mechanism.

Date of entry	Country	Notes
1 January 1999		The Danish krone entered the ERM II in 1999, when the euro was created. Since then, it floats against the euro in ±2.25% range.
28 June 2004		Estonia had pegged its currency to the German Mark, and then the euro.
		The Lithuanian litas was pegged to the US dollar until 2 February 2002, when it switched to a euro peg.
		The Slovenian tolar floats in a ±15% range (1 eur = 239.64 sit) against the euro. (Since entering into ERM II it has floated in the range of ±1%)
2 May, 2005
		Latvia has a currency board arrangement whose anchor switched from the SDR to the euro on 1 January, 2005. The current lats fluctuation margin is ±1% against the euro.
		The Maltese lira entered the ERM II on May 2, 2005, and floats in a ±15% range against the euro (1 eur = 0.429300 LM).
28 November, 2005		The koruna now floats in a ±15% range (1 eur = 38.4550 koruna) against the euro.

Denmark

A referendum on joining the Eurozone was held on 28 September, 2000, resulting in a 53.2% vote against joining. If Denmark ever joins, Greenland, which is not part of the EU, but of Denmark, would have to hold a separate referendum to decide whether it wants to switch to the euro. The outcome of this possibility is uncertain, as current trends seem to favour independence from Denmark.

Slovenia

Slovenia aims to adopt the euro on January 1, 2007. This date was confirmed and finalized by the European Commission on May 16, 2006.

Estonia

Estonia aims to adopt the euro on January 1, 2008 The previous target date of January 1, 2007 was postponed because Estonia didn't meet the inflation criterion [http://euro.eesti.ee/EU/Euroveeb_edit/Main_Page/News/goverment_euro__delay.jsp.

Cyprus

Cyprus aims to adopt the euro on January 1, 2008.

Latvia

Latvia aims to adopt the euro on January 1, 2008. This date has recently been questioned by economists, who think that Latvia's problems with controlling inflation will cause the adoption date to be delayed by at least one year. In their opinion January 1, 2009 is the most optimistic date for Latvian euro adoption ^*.

Malta

Malta aims to adopt the euro on January 1, 2008.

Slovakia

Slovakia aims to adopt the euro on January 1, 2009.

Lithuania

Lithuania aims to adopt the euro on January 1, 2009 but this could be postponed again. The previous target date of January 1, 2007 was postponed because Lithuania did not meet the inflation criterion: curiously this failure was a result of low inflation rates in Sweden and Poland, neither of which were in the Eurozone at the time.

Outside ERM II

Czech Republic

Since joining the EU in 2004, the Czech Republic has adopted a fiscal and monetary policy that aims to align its macroeconomic conditions with the rest of the European Union. Currently, the most pressing issue is the large Czech fiscal deficit. The Czech Republic aims for entry into the ERM II in 2008, although economic forecasts indicate that it may not be ready until 2009.

Hungary

Hungary plans to adopt the euro as its official currency on 1 January 2010, although unofficial assessments suggest it will only happen by 2012 or even 2014.

Poland

Although Poland is obliged to join the Eurozone as euro adoption was "part of the EU-package", the new Polish president Lech Kaczyński has said he wants to organise a referendum concerning euro adoption. Strictly speaking the Polish people have already voted in favour of euro adoption as the referendum on EU entry, which also implied EMU entry, was for voted in favour (77%). EU commissioner Joaquin Almunia has reminded Poland that it does not have an EMU opt-out which the UK and Denmark do have ^*.

In May 2006 Poland finally set its target date for euro introduction on January 1, 2011

Sweden

Sweden does not have any derogation by any protocol or treaty. Nevertheless, Sweden decided in 1997 not to join the Eurozone from the beginning, and has not made any effort to fulfill the required criteria for a stable exchange rate.

The first referendum held in Sweden regarding the adoption of the Euro was on November 13 1994. The adoption of the euro is integral part of its Treaty of Accession to the European Union. The vote was 53% in favour for joining the EU, and thus the Eurozone.

The consultative national referendum on September 14, 2003, resulted in a rejection of adopting the euro, with the following figures: Yes 42.0%, No 55.9%. Consequently, the decision has been postponed, as all political parties have pledged to uphold the results for the time being. Prime Minister Göran Persson said in September 2004 that the Swedish membership will definitely not happen before the 2010 General Election. [http://www.aftonbladet.se/vss/ekonomi/story/0,2789,531733,00.html

The decision of Sweden not to adopt the euro in the near future is generally accepted within the European Union. Sweden joined the EU in 1995, and as such did not have the opportunity to gain an opt-out in the Maastricht treaty, which was already concluded in 1992. In 1995, however, the euro didn't exist, neither physically (2002) nor legally (1999), and maybe because of this the European Commission has not taken any legal action about fullfilling this Swedish commitment so far.

It should be noted, however, that Sweden is technically also obliged to introduce the euro, which is not planned to be reconsidered until 2009 after a referendum in 2003 resulted in a clear "no". It has been warned however, that any move similar to that of Sweden in the new states will not be tolerated, as it has been with Sweden.

United Kingdom

The British government under Prime Minister Tony Blair has committed itself to a triple-approval procedure before joining the Eurozone, involving approval by the Cabinet, Parliament, and the British electorate in a referendum.

Unlike other European countries, where the euro is seen mostly as an essential building block in a more politically integrated Europe, in the United Kingdom the possible benefits of Eurozone membership are seen mostly as principally economic, and an assessment of British membership based on five economic tests was published on June 9, 2003 by Chancellor of the Exchequer Gordon Brown.

Though maintaining the government's positive view on the euro, the report came out against membership because four out of the five tests were not passed.

Chancellor Brown stated ^* in June 2003 that the best exchange rate for the UK to join the single currency would be around 73 pence per euro (a value which the pair had never reached). This rate has not been formalised as an official condition of entry.

Opinion polls ^* in the UK show a consistent majority of the British public to be against joining the Eurozone. Some perceive loss of political and economic sovereignty; others are unconvinced of the case for change from their familiar currency. However, one of the main reasons for hostility is the perceived failure of the euro in Eurozone economies — the UK has enjoyed superior economic performance to major Eurozone economies throughout the euro era. The large future unfunded pension liabilities of continental Europe's greying populations (unlike in the UK where pension liabilities are generally well-funded, and the UK's population will not decline) are often cited as a major economic argument against joining. A referendum in the near future has been ruled out.

If Britain were to join the Eurozone, it is unclear what would happen in its overseas territories which use the British pound sterling. It is conceivable that the euro would only become the official currency in those regions which technically use the currency identified by the code GBP (i.e., Great Britain and Northern Ireland, South Georgia and the South Sandwich Islands), while the regions using their own currencies with a fixed exchange rate of 1 : 1 to the pound sterling might keep their currencies with a fixed rate to the euro. Those regions would be the Falkland Islands (Falkland Islands pound - FKP), the Isle of Man (Isle of Man pound), Jersey (Jersey pound), Guernsey (Guernsey pound - GGP), and Saint Helena (Saint Helenian pound - SHP). France faced a similar situation on joining solved by areas which used the French franc directly (e.g., French Guiana) switching to the euro, and regions which used locally issued francs, pegged to the French franc, maintaining local currencies but switching their pegs to the euro (e.g., the CFP franc). Note that Gibraltar (Gibraltar pound - GIP) is also within the EU, and that as it has a separate pegged currency, it would be subject to a separate referendum on the euro. Also of interest is that Scotland and Northern Ireland, although part of the UK, do not have an official currency defined in law. Here, each bank prints its own paper money, of different design to both the Bank of England issue and each other, and this money is denominated in pounds sterling. It is unclear whether, following a euro changeover, these banks would change denominations of their own issued in euros, or cease issuing their own money. See British banknotes.

''See also: Five economic tests.

Euro adoption by the new member states

The ten new member states should be adopting the euro as soon as appropriate guidelines are met. For these new member states, the single currency was "part of the package" of European Union membership – unlike the UK and Denmark, there is no "opt out" permitted. Sweden also has no opt-out, but its government has made no moves towards fulfilling criteria for joining.

The dates these ten states are expected to enter the third stage of the EMU and adopt the euro vary: 1 January, 2007 for Slovenia; 1 January, 2008 for Estonia, Cyprus, Latvia and Malta; 2009 for Lithuania and Slovakia; 2010 for the Czech Republic, 2011 for Poland, and finally 2012 for Hungary. On May 16, 2006 the European Commission recommended Slovenia to become the only new member of the Eurozone.

Showing the ability to move towards full economic and monetary union is one requisite of "good membership". The ECB and European Commission produce reports every two years analysing the economic and other conditions of non-eurozone EU members, reporting on their suitability for joining the Eurozone. The first to include the 10 new members was published in October 2004 ^*. The German Bundesbank, a major and arguably the most important national bank in the ESCB, is criticising the bloc's rush to enlarge the single currency zone.


Target date for euro adoption	January 1, 2007	January 1, 2008	January 1, 2008	January 1, 2008	January 1, 2008	January 1, 2009	January 1, 2009
ERM II entry	June 28, 2004	June 28, 2004	May 2, 2005	May 2, 2005	May 2, 2005	June 28, 2004	November 28, 2005
'''Co-ordinating institution	The Coordinating Committee for Technical Preparations, created in July 2004	The National Changeover Committee, created on Jan 27, 2005	The Steering Committee for the preparation and coordination of the euro changeover was established on July 18, 2005	Two Committees appointed on June 13, 2005: a Steering Committee and a Euro Changeover Committee reporting to it	Joint coordination by the Minister of Finance and the Central Bank of Cyprus, created on December 29, 2004	Commission for the Coordination of the Adoption of the euro in Lithuania, created on May 30, 2005	Ministry of Finance
Approved National Changeover Plan	Masterplan approved in Jan, 2005	First draft approved on Sept 1, 2005 ^*		First version approved by the government on Sept 27, 2005	Approved on July 6, 2005
Type of scenario	Big-Bang	Big-Bang	Big-Bang		Big-Bang	Big-Bang	Big-Bang
Dual circulation period	2 weeks	2 weeks	2 weeks		1 month	15 days	16 days
Exchange of national currency	Comm. banks until March 1, Central bank indefinitely	Comm. banks at least 6 months, Central bank indefinitely	Central bank: indefinitely		Central bank: banknotes for 10 years and coins for 2 years.	Commercial banks 60 days, Central bank indefinitely.	Comm. bank: banknotes until end 2009, coins until June 2009. Central bank: banknotes indefinitely, coins for 5 years
Dual display of prices	from March 1, 2006 until June 30, 2007	6 months before and after €-day	October 2007-June 2008			60 calendar days before until 60 days after €-day	Compulsory: from one month after fixing of conversion rate till one year after euro adoption. Voluntary: for an additional 6 months
National mint	No	No	No	No	No	Yes	Yes
National side	Approved	Approved	Final stage	Approved	Competition launched	Approved	Approved
Nr of different coin designs	8	1	4	3	3	3	3
Need for banknotes and coins	74 million banknotes, 235 million coins	150-200 million coins	87 million banknotes and 300 million coins			118.3 million banknotes, 290 million coins
Law adaptations	Umbrella law	Umbrella law under consideration		Umbrella law and a second and a third group of laws under consideration		Draft law on the adoption of the euro is prepared
Communication strategy	Endorsed by Bank of Slovenia on May 19 and by government on June 2, 2005	Endorsed by the National Changeover Committee on June 21, 2005		In process	In process	Endorsed by the government on September 27, 2005

Target date for euro adoption	January 1, 2010	January 1, 2010	January 1, 2011	mid-2009		Not before 2012
ERM II entry				immediately after EU accession ^*		Not before 2010
'''Co-ordinating institution		Preparatory work is ongoing in the Ministry of Finance and Magyar Nemzeti Bank (Central Bank of Hungary)	Inter-institutional working group MoF-NBP
Approved National Changeover Plan	The Czech Republic’s Euro Accession Strategy was approved by the Government in October 2003 ^*
Type of scenario		Big-Bang with possible phase out features
Dual circulation period		1 month
Exchange of national currency
Dual display of prices
National mint	Yes	Yes	Yes	Yes
National side	Competition under consideration	Not yet decided	Public survey
Nr of different coin designs
Need for banknotes and coins	230 million banknotes and 950 million coins
Law adaptations
Communication strategy

Notes:

Source: European Commission report "Big-bang" refers to a scenario in which, on introduction of the euro, only the euro is legal currency and the former currency is invalid instantly. Preliminary date

Non-EU currencies pegged to the euro

In 1999 the Bulgarian currency was redenominated (1 New Lev = 1000 Old Levs) and the value of the lev was fixed to one German mark, therefore its value has since been fixed in relation to the euro.

Although Bulgaria is not a member state yet (member as of January 1 2007), the Bulgarian National Bank (BNB) and the Bulgarian government have agreed on the introduction of the euro in mid 2009, when the Bulgarian National Bank is expected to become part of the Eurozone and will receive the right to issue Bulgarian euro coins. The early accession to the Eurozone is due to the extremely tight monetary policy currently in use, which is the result of Bulgaria's agreement with the Monetary Board. Even at this point of time Bulgaria has fulfilled the great majority of Eurozone membership criteria.

Cape Verde's currency was pegged to the Portuguese escudo, and now the euro.
Bosnia and Herzegovina's currency, the convertible mark, was pegged to the German mark (and now the euro).
The CFA and Comorian francs, used in former French colonies, and the CFP franc, used in French Pacific Ocean territories, were pegged to the French franc, and now the euro.

Inflation

mid 1999: 1%
mid 2000: 2%
mid 2001: 2.8%
mid 2002: 1.9%
mid 2003: 1.9%
May 2004: 2.5%
May 2005: 1.9%

Fiscal policy

For their mutual assurance and stability of the currency, members of the eurozone have to respect the Stability and Growth Pact, which sets agreed limits on deficits and national debt, with associated sanctions for deviation. However, the Stability and Growth Pact proved difficult to be applied in many countries. To respect the Pact, governments had to curb public expenses, but this entailed slower growth and less income for the public budgets; hence, they were led into a harsh vicious circle. Even countries expected to be the most rigorous, and who inspired these limits such as Germany, did overthrow the public deficit limits or could respect them only with enormous difficulties.

Gourt Home::Gourt :: Eurozone