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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 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 over 307 million people and twelve member states: 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 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. 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 will adopt the euro on 1 January 2007. This date was confirmed and finalized by the European Commission on 16 May 2006. Estonia Estonia aims to adopt the euro on 1 January 2008•. The previous target date of 1 January 2007 was postponed because Estonia didn't meet the inflation criterion•. Due to the fact that the kroon is pegged to the euro at a fixed rate anyway, the euro currently serves as a de facto secondary currency with almost all shops showing prices in euro and many willing to accept it. Even stamps carry their euro face value•. Cyprus Cyprus aims to adopt the euro on 1 January 2008. Latvia Latvia aims to adopt the euro on 1 January 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 1 January 2009 is the most optimistic date for Latvian euro adoption•. Malta Malta aims to adopt the euro on 1 January 2008. Slovakia Slovakia aims to adopt the euro on 1 January 2009. Lithuania Lithuania aims to adopt the euro on 1 January 2009 but this could be postponed again. The previous target date of 1 January 2007 was postponed because Lithuania exceeded inflation criterion by 0,1 percentage point: curiously this failure was a result of low inflation rates in Sweden and Poland, neither of which are within the Eurozone. 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. Originally, the Czech Republic aimed for entry into the ERM II in 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not meet the economic criteria. No new target date has been set. 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 2016•. Poland Although Poland is obliged to join the Eurozone as euro adoption was "part of the EU-package", the 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 1 January 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 13 November 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 14 September 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. Former Prime Minister Göran Persson said in September 2004 that the Swedish membership will definitely not happen before the 2010 General Election• •. 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 did not 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 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 9 June 2003 by the 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. Mr. 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. See also: Five economic tests. Sterling zone If the United Kingdom were to join the Eurozone, this may affect those jurisdictions that also use the pound sterling, or which have a currency on a par with sterling, the sterling area. The Crown Dependencies are one of the British Overseas Territories technically use the same currency as the United Kingdom, with ISO 4217 code GBP. They are the Isle of Man, Jersey, Guernsey, Alderney, and South Georgia and the South Sandwich Islands. Some other British Overseas Territories have their currencies fixed at par with sterling: the exchange rate is fixed so that £1 in the local currency equals £1 in sterling. They are Gibraltar, the Falkland Islands and Saint Helena. The French overseas departments and territories were faced with a similar situation when France joined the eurozone. Those which used the French franc themselves switched to using euros. Other overseas departments used the CFA franc or the CFP franc. Whilst these had fixed exchange rates with the French franc, they were not at par - in fact for various historical reasons they were worth considerably less, at approximately 1 and 5 centimes respectively. Both the CFA and CFP franc remain in existence, but are now linked to the euro at fixed rates instead. These fixed rates and free convertibility of these currencies are maintained at the expense of the French Treasury. A similar situation exists with the Comorian franc, which is also now fixed against the euro. The sterling zone territories therefore have three options: Gibraltar is in a separate position, as it is within the EU (as part of the UK's membership). If the UK was to adopt the euro it might not be possible to implement an opt-out for Gibraltar. It is unclear whether Gibraltar would be subject to a referendum or would be included in a UK referendum (Gibraltar votes as a part of the UK in European parliamentary elections). Regional British banknotes Currently, some private banks in Scotland and Northern Ireland are able to print and issue sterling banknotes of their own design. This is seen by many in these areas as an important part of their regional identities. Unless the UK Government were able to negiotiate a suitable derogation from existing EU rules, it would not be possible for these private issues of banknotes to continue upon the UK joining the eurozone. The European Central Bank only permits National Central Banks to issue banknotes. All euro banknotes are standardised across the eurozone, without any national variation. National variation is allowed in the design of euro coins, and it is possible that the Royal Mint could continue to include the symbols of the home nations on the British designed coinage, although this would have to be included in place of the Queen's portrait. Euro adoption by the new member states and Sweden The ten new member states, Bulgaria, and Romania (scheduled to enter the European Union in 2007) 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. 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 16 May 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• "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. || 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 1 March 2006 until 30 June 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 || Approved || Approved || Approved || 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 2 June 2005 || Endorsed by the National Changeover Committee on 21 June 2005 || || In process || In process || Endorsed by the government on 27 September 2005 || |- ! ! ! ! ! ! ! |- || Target date for euro adoption || 1 January 2010• Preliminary date. || January 1, 2010 || 1 January 2011 || 1 January 2010 || || 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 || || Yes |- || National side || Competition under consideration|| Not yet decided || Public survey under consideration || Not yet decided || Not yet decided || Not yet decided |- || Nr of different coin designs || || || || || || |- || Need for banknotes and coins || 230 million banknotes and 950 million coins || || || || || |- || Law adaptations || || || || || || |- || Communication strategy || || || || || || |} Upcoming EU nations The Bulgarian lev is pegged to the euro. The Bulgarian National Bank and the Bulgarian government have agreed on the introduction of the euro by 2010, most likely on 1 January 2010, when the Bulgarian National Bank is expected to become part of the EMU and will receive the right to issue Bulgarian euro coins. The early accession to the EMU is due to existing currency board agreement that was signed in 1997 to help put an end to the deep financial crisis and foreign debt reimbursement problems. The agreement effectively binds the Bulgarian lev to the euro (between 1997 and 1999, before the euro came into existence, the lev was bound to the German Mark). As a consequence, Bulgaria has fulfilled the great majority of the EMU membership criteria. In Romania, the National Bank retained its monetary policy attributes throughout the financial crisis of the 1990s (which gradually ended). Hence, Romania's accession to the EMU will take more time. It is likely that Romania will join the Eurozone in the period from 2012 to 2014. To simplify future adjustments to ATMs at the adoption of the euro, when the Romanian new leu was adopted in 2005 (at 10,000 old lei to 1 new leu) the new banknotes were issued to the same physical proportions as euro banknotes, the old leu notes being substantially longer in relation to their width. Non-EU currencies pegged to the euro 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 Fiscal policies 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. Notes See also | |||||||
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