Eurozone
Encyclopedia
The eurozone officially called the euro area, is an economic and monetary union
(EMU) of seventeen European Union
(EU) member states
that have adopted the euro
(€) as their common currency and sole legal tender
. The eurozone currently consists of Austria
, Belgium
, Cyprus
, Estonia
, Finland
, France
, Germany
, Greece
, Ireland
, Italy
, Luxembourg
, Malta
, the Netherlands
, Portugal
, Slovakia
, Slovenia
, and Spain
. Most other EU states are obliged to join once they meet the criteria to do so. No state has left and there are no provisions to do so or to be expelled.
Monetary policy
of the zone is the responsibility of the European Central Bank
(ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance or fiscal policy
for the currency union
, some co-operation does take place through the Euro Group
, which makes political decisions regarding the eurozone and the euro. The Euro Group is composed of the finance ministers of eurozone states, however in emergencies, national leaders also form the Euro Group.
Since the late-2000s financial crisis
, the eurozone has established and used provisions for granting emergency loans to member states in return for the enactment of economic reforms. The eurozone has also enacted some limited fiscal integration, for example in peer review of each other's national budgets. The issue is highly political and in a state of flux as of 2011 in terms of what further provisions will be agreed for eurozone reform.
On occasion the eurozone is taken to include non-EU members who use the euro as their official currency. Some of these countries, like San Marino
, have concluded formal agreements with the EU to use the currency and mint their own coins. Others, like Montenegro
, have adopted the euro unilaterally. However, these countries do not formally form part of the eurozone and do not have representation in the ECB or the Euro Group.
, and the eurozone came into existence with the official launch of the euro (alongside national currencies) on 1 January 1999. Greece qualified in 2000 and was admitted on 1 January 2001 before physical notes
and coins
were introduced on 1 January 2002 replacing all national currencies. Between 2007 and 2011, five new states acceded.
, the Czech Republic
, Denmark
, Hungary
, Latvia
, Lithuania
, Poland
, Romania
, Sweden
, and the United Kingdom
) are EU members but do not use the euro. Before joining the eurozone, a state must spend two years in the European Exchange Rate Mechanism
(ERM II). As of 2011, the National Central Banks (NCBs) of Latvia, Lithuania, and Denmark have participated in ERM II; most remaining currencies are expected to follow soon.
Denmark and the United Kingdom obtained special opt-outs
in the original Maastricht Treaty
. Both countries are legally exempt from joining the eurozone unless their governments decide otherwise, either by parliamentary vote or referendum
. Sweden gained a de facto opt-out by using a legal loophole. It is required to join the eurozone as soon as it fulfils the convergence criteria, which include being part of ERM II for two years; joining ERM II is voluntary. Sweden has so far decided not to join ERM II.
The 2008 financial crisis increased interest in Denmark and initially in Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro. Since Latvia requested help from the International Monetary Fund
(IMF), as a precondition, it may be forced to drop its currency peg. This would take Latvia out of ERM II and possibly move the euro adoption date even further from 2013 than currently planned. However, by 2010, the debt crisis in the euro zone caused interest from Poland and the Czech Republic to cool.
reached a monetary agreement with the EU in June 2011 which will allow it to use the euro as its official currency when ratified. Under the agreement it is intended that Andorra should gain the right to mint its own euro coins as of 1 July 2013, provided that Andorra implements relevant EU legislation.
Some states (viz. Kosovo
, and Montenegro
) officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights. These states are not considered part of the eurozone by the ECB. However, in some usage, the term eurozone is applied to all territories that have adopted the euro as their sole currency. Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.
However, the benefits of leaving the euro would vary depending on the exact situations. If the replacement currency were expected to devalue, the state would experience a large scale exodus of money, whereas if the currency were expected to appreciate then more money would flow into the economy. A rapidly appreciating currency would be detrimental to the country's exports, however.
(ECB) and the Eurosystem
which comprises the ECB and the central banks of the EU states who have joined the euro zone. Countries outside the eurozone are not represented in these institutions. Whereas all EU member states are part of the European System of Central Banks
(ESCB). Non EU member states have no say in all three institutions, even those with monetary agreements such as Monaco. The ECB is entitled to authorise the design and printing of euro banknotes
and the volume of euro coins
minted, and its president is currently Mario Draghi
.
The eurozone is represented politically by its finance ministers, known collectively as the Euro Group
, and is presided over by a president, currently Jean-Claude Juncker
. The finance ministers of the EU member states that use the euro meet a day before a meeting of the Economic and Financial Affairs Council (Ecofin)
of the Council of the European Union
. The Group is not an official Council formation but when the full EcoFin council votes on matters only affecting the eurozone, only Euro Group members are permitted to vote on it.
Since the global financial crisis
first began in 2008, the Euro Group has met irregularly not as finance ministers, but as heads of state and government (like the European Council). It is in this forum, the Euro summit
, that many eurozone reforms have been agreed. French President Nicolas Sarkozy
is pushing, as of 2011, for these summits to become regular and twice a year in order for it to be a 'true economic government'.
On 15 April 2008 in Brussels, Juncker suggested that the eurozone should be represented at the International Monetary Fund
as a bloc, rather than each member state separately: "It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene." However Finance Commissioner
Joaquín Almunia
stated that before there is common representation, a common political agenda should be agreed.
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. The Pact originally set a limit of 3% of GDP for the yearly deficit of all eurozone member states; with fines for any state which exceeded this amount. In 2005, Portugal, Germany, and France had all exceeded this amount, but the Council of Ministers had not voted to fine those states. Subsequently, reforms were adopted to provide more flexibility and ensure that the deficit criteria took into account the economic conditions of the member states, and additional factors.
The Organisation for Economic Co-operation and Development
downgraded its economic forecasts on 20 March 2008 for the eurozone for the first half of 2008. Europe does not have room to ease fiscal or monetary policy, the 30-nation group warned. For the euro zone, the OECD now forecasts first-quarter GDP growth of just 0.5%, with no improvement in the second quarter, which is expected to show just a 0.4% gain.
prompted a number of reforms in the eurozone. One was a u-turn on the eurozone's bailout policy that led to the creation of a specific fund to assist eurozone states in trouble. The European Financial Stability Facility
(EFSF) and the European Financial Stability Mechanism (EFSM) were created in 2010 to provide, alongside the International Monetary Fund
(IMF), a system and fund to bailout members. However the EFSF and EFSM were temporary, small and lacked a basis in the EU treaties. Therefore, it was agreed in 2011 to establish a European Stability Mechanism
(ESM) which would be much larger, funded only by eurozone states (not the EU as a whole as the EFSF/EFSM were) and would have a permanent treaty basis
. As a result of that its creation involved agreeing an amendment to TEFU Article 136 allowing for the ESM and a new ESM treaty to detail how the ESM would operate. If both are successfully ratified according to schedule, the ESM would be operation by the time the EFSF/EFSM expire in mid-2013.
. Although showing the entire budget to each other was opposed by Germany, Sweden and the UK, each government would present to their peers and the Commission their estimates for growth, inflation, revenue and expenditure levels six months before they go to national parliaments. If a country was to run a deficit, they would have to justify it to the rest of the EU while countries with a debt more than 60% of GDP would face greater scrutiny.
The plans would apply to all EU members, not just the eurozone, and have to be approved by EU leaders along with proposals for states to face sanctions before they reach the 3% limit in the Stability and Growth Pact
. Poland has criticised the idea of withholding regional funding for those who break the deficit limits, as that would only impact the poorer states. In June 2010 France agreed to back Germany's plan for suspending the voting rights of members who breach the rules. In March 2011 was initiated a new reform of the Stability and Growth Pact aiming at straightening the rules by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules.
Economic and monetary union
An economic and monetary union is a type of trade bloc which is composed of an economic union with a monetary union. It is to be distinguished from a mere monetary union , which does not involve a common market. This is the fifth stage of economic integration...
(EMU) of seventeen European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
(EU) member states
Member State of the European Union
A member state of the European Union is a state that is party to treaties of the European Union and has thereby undertaken the privileges and obligations that EU membership entails. Unlike membership of an international organisation, being an EU member state places a country under binding laws in...
that have adopted the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
(€) as their common currency and sole legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
. The eurozone currently consists of Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
, Cyprus
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...
, Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...
, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
, Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...
, Malta
Malta
Malta , officially known as the Republic of Malta , is a Southern European country consisting of an archipelago situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya, with Gibraltar to the west and Alexandria to the east.Malta covers just over in...
, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
, Slovakia
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...
, Slovenia
Slovenia
Slovenia , officially the Republic of Slovenia , is a country in Central and Southeastern Europe touching the Alps and bordering the Mediterranean. Slovenia borders Italy to the west, Croatia to the south and east, Hungary to the northeast, and Austria to the north, and also has a small portion of...
, and Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
. Most other EU states are obliged to join once they meet the criteria to do so. No state has left and there are no provisions to do so or to be expelled.
Monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
of the zone is the responsibility of the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
(ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance or fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
for the currency union
Currency union
A currency union is where two or more states share the same currency, though without there necessarily having any further integration such as an Economic and Monetary Union, which has in addition a customs union and a single market.There are three types of currency unions:#Informal - unilateral...
, some co-operation does take place through the Euro Group
Euro Group
The Euro Group or Eurogroup is a meeting of the finance ministers of the eurozone . It is the political control over the euro currency and related aspects of the EU's monetary union such as the Stability and Growth Pact...
, which makes political decisions regarding the eurozone and the euro. The Euro Group is composed of the finance ministers of eurozone states, however in emergencies, national leaders also form the Euro Group.
Since the late-2000s financial crisis
Late-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...
, the eurozone has established and used provisions for granting emergency loans to member states in return for the enactment of economic reforms. The eurozone has also enacted some limited fiscal integration, for example in peer review of each other's national budgets. The issue is highly political and in a state of flux as of 2011 in terms of what further provisions will be agreed for eurozone reform.
On occasion the eurozone is taken to include non-EU members who use the euro as their official currency. Some of these countries, like San Marino
San Marino
San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...
, have concluded formal agreements with the EU to use the currency and mint their own coins. Others, like Montenegro
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...
, have adopted the euro unilaterally. However, these countries do not formally form part of the eurozone and do not have representation in the ECB or the Euro Group.
Members
In 1998 eleven European Union member states had met the convergence criteriaConvergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...
, and the eurozone came into existence with the official launch of the euro (alongside national currencies) on 1 January 1999. Greece qualified in 2000 and was admitted on 1 January 2001 before physical notes
Euro banknotes
Euro banknotes are the banknotes of the euro, the currency of the eurozone and have been in circulation since 2002. They are issued by the national central banks of the euro area or the European Central Bank...
and coins
Euro coins
There are eight euro coin denominations, ranging from one cent to two euros . The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different...
were introduced on 1 January 2002 replacing all national currencies. Between 2007 and 2011, five new states acceded.
| State Member State of the European Union A member state of the European Union is a state that is party to treaties of the European Union and has thereby undertaken the privileges and obligations that EU membership entails. Unlike membership of an international organisation, being an EU member state places a country under binding laws in... |
Adopted Enlargement of the eurozone The enlargement of the eurozone is a continuing process within the European Union . All member states of the EU, except for Denmark, the United Kingdom and de facto Sweden, are obliged to adopt the euro as their sole currency when they meet the criteria... |
Population (Jan. 1, 2011) |
Nominal GDP World Bank, 2009 |
Exceptions |
|---|---|---|---|---|
 Austria |
8,404,252 | |||
 Belgium |
10,918,405 | |||
 Cyprus |
804,435 | The self-declared Turkish Republic of Northern Cyprus is not recognised by the EU and uses the Turkish lira Turkish lira The Turkish lira is the currency of Turkey and the de facto independent state of the Turkish Republic of Northern Cyprus. The lira is subdivided into 100 kuruş... . However the euro does circulate widely. |
||
 Estonia |
1,340,194 | |||
 Finland |
5,375,276 | |||
 Early Modern France |
65,075,373 | |
||
 Germany |
81,751,602 | |||
 Greece |
11,325,897 | |||
 Republic of Ireland |
4,480,858 | |||
 Italy |
60,626,442 |  Campione d'ItaliaCampione d'Italia Campione d'Italia is an Italian comune of the Province of Como in the Lombardy region, occupying an enclave within the Swiss canton of Ticino, separated from the rest of Italy by Lake Lugano and mountains... Uses the Swiss franc Swiss franc The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there... . However the euro is also accepted and circulates widely. |
||
 Luxembourg |
511,840 | |||
 Malta |
417,617 | |||
 Netherlands |
16,655,799 | Aruba is part of the Kingdom of the Netherlands, but not the EU. It uses the Aruban florin Aruban florin The florin is the currency of Aruba. It is subdivided into 100 cents. The florin was introduced in 1986, replacing the Netherlands Antillean guilder at par.-History:... , which is pegged to the US dollar.  Curaçao CuraçaoCuraçao Curaçao is an island in the southern Caribbean Sea, off the Venezuelan coast. The Country of Curaçao , which includes the main island plus the small, uninhabited island of Klein Curaçao , is a constituent country of the Kingdom of the Netherlands...  Sint Maarten Sint Maarten Netherlands Caribbean NetherlandsUses the US Dollar. |
||
 Portugal |
10,636,979 | |||
 Slovakia |
5,435,273 | |||
 Slovenia |
2,050,189 | |||
 Spain |
46,152,926 | |||
 European Union Eurozone |
331,963,357 | |||
Enlargement
Ten countries (BulgariaBulgaria
Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east...
, the Czech Republic
Czech Republic
The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....
, Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
, Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
, Latvia
Latvia
Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden...
, Lithuania
Lithuania
Lithuania , officially the Republic of Lithuania is a country in Northern Europe, the biggest of the three Baltic states. It is situated along the southeastern shore of the Baltic Sea, whereby to the west lie Sweden and Denmark...
, Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
, Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
, and the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
) are EU members but do not use the euro. Before joining the eurozone, a state must spend two years in the European Exchange Rate Mechanism
European Exchange Rate Mechanism
The European Exchange Rate Mechanism, ERM, was a system introduced by the European Community in March 1979, as part of the European Monetary System , to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of...
(ERM II). As of 2011, the National Central Banks (NCBs) of Latvia, Lithuania, and Denmark have participated in ERM II; most remaining currencies are expected to follow soon.
Denmark and the United Kingdom obtained special opt-outs
Opt-outs in the European Union
In general, the law of the European Union is valid in all of the twenty-seven European Union member states. However, occasionally member states negotiate certain opt-outs from legislation or treaties of the European Union, meaning they do not have to participate in certain policy areas...
in the original Maastricht Treaty
Maastricht Treaty
The Maastricht Treaty was signed on 7 February 1992 by the members of the European Community in Maastricht, Netherlands. On 9–10 December 1991, the same city hosted the European Council which drafted the treaty...
. Both countries are legally exempt from joining the eurozone unless their governments decide otherwise, either by parliamentary vote or referendum
Referendum
A referendum is a direct vote in which an entire electorate is asked to either accept or reject a particular proposal. This may result in the adoption of a new constitution, a constitutional amendment, a law, the recall of an elected official or simply a specific government policy. It is a form of...
. Sweden gained a de facto opt-out by using a legal loophole. It is required to join the eurozone as soon as it fulfils the convergence criteria, which include being part of ERM II for two years; joining ERM II is voluntary. Sweden has so far decided not to join ERM II.
The 2008 financial crisis increased interest in Denmark and initially in Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro. Since Latvia requested help from the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF), as a precondition, it may be forced to drop its currency peg. This would take Latvia out of ERM II and possibly move the euro adoption date even further from 2013 than currently planned. However, by 2010, the debt crisis in the euro zone caused interest from Poland and the Czech Republic to cool.
Non-member usage
The euro is also used in countries outside the EU. Three states—Monaco, San Marino, and Vatican City— have signed formal agreements with the EU to use the euro and mint their own coins. Nevertheless, they are not considered part of the eurozone by the ECB and do not have a seat in the ECB or Euro Group. AndorraAndorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...
reached a monetary agreement with the EU in June 2011 which will allow it to use the euro as its official currency when ratified. Under the agreement it is intended that Andorra should gain the right to mint its own euro coins as of 1 July 2013, provided that Andorra implements relevant EU legislation.
Some states (viz. Kosovo
Kosovo
Kosovo is a region in southeastern Europe. Part of the Ottoman Empire for more than five centuries, later the Autonomous Province of Kosovo and Metohija within Serbia...
, and Montenegro
Montenegro
Montenegro Montenegrin: Crna Gora Црна Гора , meaning "Black Mountain") is a country located in Southeastern Europe. It has a coast on the Adriatic Sea to the south-west and is bordered by Croatia to the west, Bosnia and Herzegovina to the northwest, Serbia to the northeast and Albania to the...
) officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights. These states are not considered part of the eurozone by the ECB. However, in some usage, the term eurozone is applied to all territories that have adopted the euro as their sole currency. Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.
Secession and expulsion
While the eurozone is open to all EU member states to join once they meet the criteria, there is no provision in the EU treaties for a state to leave the eurozone without also leaving the EU as a whole. Likewise there is no provision for a state to be expelled from the euro. However some, including the Dutch government, favour such a provision being created in the event there is a heavily indebted state in the eurozone that refuses to comply with an EU economic reform policy.However, the benefits of leaving the euro would vary depending on the exact situations. If the replacement currency were expected to devalue, the state would experience a large scale exodus of money, whereas if the currency were expected to appreciate then more money would flow into the economy. A rapidly appreciating currency would be detrimental to the country's exports, however.
Administration and representation
The monetary policy of all countries in the eurozone is managed by the European Central BankEuropean Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
(ECB) and the Eurosystem
Eurosystem
The Eurosystem is the monetary authority of the Eurozone, the collective of European Union member states that have adopted the euro as their sole official currency...
which comprises the ECB and the central banks of the EU states who have joined the euro zone. Countries outside the eurozone are not represented in these institutions. Whereas all EU member states are part of the European System of Central Banks
European System of Central Banks
The European System of Central Banks is composed of the European Central Bank and the national central banks of all 27 European Union Member States.-Functions:...
(ESCB). Non EU member states have no say in all three institutions, even those with monetary agreements such as Monaco. The ECB is entitled to authorise the design and printing of euro banknotes
Euro banknotes
Euro banknotes are the banknotes of the euro, the currency of the eurozone and have been in circulation since 2002. They are issued by the national central banks of the euro area or the European Central Bank...
and the volume of euro coins
Euro coins
There are eight euro coin denominations, ranging from one cent to two euros . The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different...
minted, and its president is currently Mario Draghi
Mario Draghi
Mario Draghi is an Italian banker and economist who succeeded Jean-Claude Trichet as President of the European Central Bank on 1 November 2011...
.
The eurozone is represented politically by its finance ministers, known collectively as the Euro Group
Euro Group
The Euro Group or Eurogroup is a meeting of the finance ministers of the eurozone . It is the political control over the euro currency and related aspects of the EU's monetary union such as the Stability and Growth Pact...
, and is presided over by a president, currently Jean-Claude Juncker
Jean-Claude Juncker
Jean-Claude Juncker is a Luxembourg politician, 23rd and current Prime Minister of Luxembourg, since 20 January 1995. He is the longest standing head of government of any European Union state...
. The finance ministers of the EU member states that use the euro meet a day before a meeting of the Economic and Financial Affairs Council (Ecofin)
Economic and Financial Affairs Council
The Economic and Financial Affairs Council is one of the oldest configurations of the Council of the European Union and is composed of the Economics and Finance Ministers of the 27 European Union member states, as well as Budget Ministers when budgetary issues are discussed.ECOFIN often works with...
of the Council of the European Union
Council of the European Union
The Council of the European Union is the institution in the legislature of the European Union representing the executives of member states, the other legislative body being the European Parliament. The Council is composed of twenty-seven national ministers...
. The Group is not an official Council formation but when the full EcoFin council votes on matters only affecting the eurozone, only Euro Group members are permitted to vote on it.
Since the global financial crisis
Late-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...
first began in 2008, the Euro Group has met irregularly not as finance ministers, but as heads of state and government (like the European Council). It is in this forum, the Euro summit
Euro summit
The Euro summit is the meeting of the heads of state or government of the member states of the eurozone...
, that many eurozone reforms have been agreed. French President Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
is pushing, as of 2011, for these summits to become regular and twice a year in order for it to be a 'true economic government'.
On 15 April 2008 in Brussels, Juncker suggested that the eurozone should be represented at the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
as a bloc, rather than each member state separately: "It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene." However Finance Commissioner
European Commissioner for Economic & Financial Affairs
The Commissioner for Economic and Monetary Affairs and the Euro is the member of the European Commission responsible for economic and financial affairs. The current Commissioner is Olli Rehn .-Responsibilities:...
Joaquín Almunia
Joaquín Almunia
Joaquín Almunia Amann is a Spanish politician and prominent member of the European Commission, currently responsible for Competition under the second mandate of President Barroso. He was previously responsible for Economic and Monetary Affairs in Barroso's previous mandate...
stated that before there is common representation, a common political agenda should be agreed.
Comparison table
| Population | GDP | % world | Exports | Imports | |
|---|---|---|---|---|---|
| eurozone | 317 million | €8.4 trillion | 14.6% | 21.7% GDP | 20.9% GDP |
| EU (27) | 494 million | €11.9 trillion | 21.0% | 14.3% GDP | 15.0% GDP |
| United States | 300 million | €11.2 trillion | 19.7% | 10.8% GDP | 16.6% GDP |
| Japan | 128 million | €3.5 trillion | 6.3% | 16.8% GDP | 15.3% GDP |
| GDP in PPP Purchasing power parity In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates... , exports/imports as goods and services excluding intra-EU trade. |
|||||
Inflation
HICP figures from the ECB, taken from May of each year:
|
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Interest rates
Interest rates for the eurozone, set by the ECB since 1999. Levels are in percentages per annum. Between to June 2000 and October 2008, the main refinancing operations were variable rate tenders, as opposed to fixed rate tenders. The figures indicated in the table from 2000 to 2008 refer to the minimum interest rate at which counterparties may place their bids.| Date | Deposit facility | Main refinancing operations | Marginal lending facility |
|---|---|---|---|
| 1 Jan 1999 | 2.00 | 3.00 | 4.50 |
| 4 Jan 1999The ECB announced on 22 December 1998 that, between 4 and 21 January 1999, there would be a narrow corridor of 50 base points interest rates for the marginal lending facility and the deposit facility in order to help the transition to the ECB's interest regime. | 2.75 | 3.00 | 3.25 |
| 22 Jan 1999 | 2.00 | 3.00 | 4.50 |
| 9 Apr 1999 | 1.50 | 2.50 | 3.50 |
| 5 Nov 1999 | 2.00 | 3.00 | 4.00 |
| 4 Feb 2000 | 2.25 | 3.25 | 4.25 |
| 17 Mar 2000 | 2.50 | 3.50 | 4.50 |
| 28 Apr 2000 | 2.75 | 3.75 | 4.75 |
| 9 Jun 2000 | 3.25 | 4.25 | 5.25 |
| 28 Jun 2000 | 3.25 | 4.25 | 5.25 |
| 1 Sep 2000 | 3.50 | 4.50 | 5.50 |
| 6 Oct 2000 | 3.75 | 4.75 | 5.75 |
| 11 May 2001 | 3.50 | 4.50 | 5.50 |
| 31 Aug 2001 | 3.25 | 4.25 | 5.25 |
| 18 Sep 2001 | 2.75 | 3.75 | 4.75 |
| 9 Nov 2001 | 2.25 | 3.25 | 4.25 |
| 6 Dec 2002 | 1.75 | 2.75 | 3.75 |
| 7 Mar 2003 | 1.50 | 2.50 | 3.50 |
| 6 Jun 2003 | 1.00 | 2.00 | 3.00 |
| 6 Dec 2005 | 1.25 | 2.25 | 3.25 |
| 8 Mar 2006 | 1.50 | 2.50 | 3.50 |
| 15 Jun 2006 | 1.75 | 2.75 | 3.75 |
| 9 Aug 2006 | 2.00 | 3.00 | 4.00 |
| 11 Oct 2006 | 2.25 | 3.25 | 4.25 |
| 13 Dec 2006 | 2.50 | 3.50 | 4.50 |
| 14 Mar 2007 | 2.75 | 3.75 | 4.75 |
| 13 Jun 2007 | 3.00 | 4.00 | 5.00 |
| 9 Jul 2008 | 3.25 | 4.25 | 5.25 |
| 8 Oct 2008 | 2.75 | 4.75 | |
| 9 Oct 2008 | 3.25 | 4.25 | |
| 15 Oct 2008 | 3.25 | 3.75 | 4.25 |
| 12 Nov 2008 | 2.75 | 3.25 | 3.75 |
| 10 Dec 2008 | 2.00 | 2.50 | 3.00 |
| 21 Jan 2009 | 1.00 | 2.00 | 3.00 |
| 11 Mar 2009 | 0.50 | 1.50 | 2.50 |
| 8 Apr 2009 | 0.25 | 1.25 | 2.25 |
| 13 May 2009 | 0.25 | 1.00 | 1.75 |
| 13 April 2011 | 0.50 | 1.25 | 2.00 |
| 13 July 2011 | 0.75 | 1.50 | 2.25 |
| 9 November 2011 | 0.50 | 1.25 | 2.00 |
Public debt
The following table states the ratio of public debt to GDP in percent for EU and other selected European states. Eurozone and non-eurozone EU members are marked as Euro and EU respectively. The euro convergence criterion is 60 %.| Country | CIA 2007 | OECD 2009 | IMF 2009 | CIA 2009 | EuroStat 2010 |
|---|---|---|---|---|---|
| Austria |
59.10 | 72.7 | 67.10 | 66.40 | 72.3 |
| Belgium |
84.60 | 100.4 | 93.70 | 101.00 | 96.8 |
| Cyprus |
59.60 | 56.20 | 56.20 | 60.8 | |
| Estonia |
3.40 | 7.10 | 6.6 | ||
| Finland |
35.90 | 52.6 | 44.00 | 40.30 | 48.4 |
| Early Modern France |
63.90 | 87.1 | 78.10 | 77.60 | 81.7 |
| Germany |
64.90 | 76.5 | 72.50 | 77.20 | 83.2 |
| Greece |
89.50 | 120.2 | 113.40 | 142.8 | |
| Republic of Ireland |
24.90 | 72.7 | 64.00 | 64.80 | 96.2 |
| Italy |
104.00 | 127.7 | 115.8 | 115.80 | 119.0 |
| Luxembourg |
6.40 | 18.0 | 16.40 | 14.60 | 18.4 |
| Malta |
69.00 | 68.0 | |||
| Netherlands |
45.50 | 69.4 | 58.90 | 60.90 | 62.7 |
| Portugal |
63.60 | 86.3 | 75.80 | 76.80 | 93.0 |
| Slovakia |
35.90 | 39.8 | 35.70 | 35.70 | 41.0 |
| Slovenia |
23.60 | 44.1 | 31.30 | 38.0 | |
| Spain |
36.20 | 62.4 | 53.20 | 53.20 | 60.1 |
Fiscal policies
The primary means for fiscal coordination within the EU lies in the Broad Economic Policy Guidelines which are written for every member state, but with particular reference to the 17 current members of the eurozone. These guidelines are not binding, but are intended to represent policy coordination among the EU member states, so as to take into account the linked structures of their economies.For their mutual assurance and stability of the currency, members of the eurozone have to respect the Stability and Growth Pact
Stability and Growth Pact
The Stability and Growth Pact is an agreement among the 27 Member states of the European Union that take part in the Eurozone, to facilitate and maintain the stability of the Economic and Monetary Union...
, which sets agreed limits on deficits and national debt, with associated sanctions for deviation. The Pact originally set a limit of 3% of GDP for the yearly deficit of all eurozone member states; with fines for any state which exceeded this amount. In 2005, Portugal, Germany, and France had all exceeded this amount, but the Council of Ministers had not voted to fine those states. Subsequently, reforms were adopted to provide more flexibility and ensure that the deficit criteria took into account the economic conditions of the member states, and additional factors.
The Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
downgraded its economic forecasts on 20 March 2008 for the eurozone for the first half of 2008. Europe does not have room to ease fiscal or monetary policy, the 30-nation group warned. For the euro zone, the OECD now forecasts first-quarter GDP growth of just 0.5%, with no improvement in the second quarter, which is expected to show just a 0.4% gain.
Bailout provisions
The late-2000s financial crisisLate-2000s financial crisis
The late-2000s financial crisis is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s...
prompted a number of reforms in the eurozone. One was a u-turn on the eurozone's bailout policy that led to the creation of a specific fund to assist eurozone states in trouble. The European Financial Stability Facility
European Financial Stability Facility
The European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
(EFSF) and the European Financial Stability Mechanism (EFSM) were created in 2010 to provide, alongside the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF), a system and fund to bailout members. However the EFSF and EFSM were temporary, small and lacked a basis in the EU treaties. Therefore, it was agreed in 2011 to establish a European Stability Mechanism
European Stability Mechanism
The European Stability Mechanism is a permanent rescue funding programme to succeed the temporary European Financial Stability Facility and European Financial Stabilisation Mechanism...
(ESM) which would be much larger, funded only by eurozone states (not the EU as a whole as the EFSF/EFSM were) and would have a permanent treaty basis
Treaties of the European Union
The Treaties of the European Union are a set of international treaties between the European Union member states which sets out the EU's constitutional basis. They establish the various EU institutions together with their remit, procedures and objectives...
. As a result of that its creation involved agreeing an amendment to TEFU Article 136 allowing for the ESM and a new ESM treaty to detail how the ESM would operate. If both are successfully ratified according to schedule, the ESM would be operation by the time the EFSF/EFSM expire in mid-2013.
Peer review
Strong EU oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it have sometimes been described as potential infringements on the sovereignty of eurozone member states However, in June 2010, broad agreement was finally reached on a controversial proposal for member states to peer review each others' budgets prior to their presentation to national parliamentsNational parliaments of the European Union
The national parliaments of the European Union are those legislatures responsible for each member state of the European Union . They have a certain degree of institutionalised influence which was expanded under the Treaty of Lisbon to include greater ability to scrutinise proposed EU...
. Although showing the entire budget to each other was opposed by Germany, Sweden and the UK, each government would present to their peers and the Commission their estimates for growth, inflation, revenue and expenditure levels six months before they go to national parliaments. If a country was to run a deficit, they would have to justify it to the rest of the EU while countries with a debt more than 60% of GDP would face greater scrutiny.
The plans would apply to all EU members, not just the eurozone, and have to be approved by EU leaders along with proposals for states to face sanctions before they reach the 3% limit in the Stability and Growth Pact
Stability and Growth Pact
The Stability and Growth Pact is an agreement among the 27 Member states of the European Union that take part in the Eurozone, to facilitate and maintain the stability of the Economic and Monetary Union...
. Poland has criticised the idea of withholding regional funding for those who break the deficit limits, as that would only impact the poorer states. In June 2010 France agreed to back Germany's plan for suspending the voting rights of members who breach the rules. In March 2011 was initiated a new reform of the Stability and Growth Pact aiming at straightening the rules by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules.