The Eurozone, officially called the euro area, is an economic and monetary union of 18 European
Union member states that have adopted the euro as their common currency and sole legal
tender.
The Eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany,
Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia, and Spain.
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.
Monaco, San Marino, the Vatican City and Andorra have formal agreements with the EU to use
the euro as their official currency and issue their own coins.
Other states, like Kosovo and Montenegro, have adopted the euro unilaterally, but these
countries do not formally form part of the Eurozone and do not have representation in
the ECB or the Eurogroup.
Monetary policy of the zone is the responsibility of the European Central Bank 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 Eurogroup, which makes political decisions
regarding the Eurozone and the euro.
The Eurogroup is composed of the finance ministers of Eurozone states, but in emergencies, national
leaders also form the Eurogroup.
Since the financial crisis of 2007–08, 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 political and in a state of flux in terms of what further provisions will be
agreed for Eurozone reform.
Member states In 1998 eleven member states of the European
Union had met the euro 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 before physical notes and
coins were introduced on 1 January 2002 replacing all national currencies.
Between 2007 and 2014, six new states acceded.
The 2012 data above of Eurozone states were published by World Bank in May 2014.
Latvia was not in the Eurozone in 2012.
Enlargement
Ten countries are EU members but do not use the euro, though Lithuania is due to adopt
the euro from 1 January 2015.
Before joining the Eurozone, a state must spend two years in the European Exchange Rate
Mechanism.
As of 2014, the National Central Banks of Lithuania and Denmark participate in ERM II.
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.
However, by 2010 the debt crisis in the Eurozone caused interest from Poland and the Czech
Republic to cool.
Lithuania plans to adopt the euro in 2015.
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 issue 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.
Andorra's monetary agreement with the EU to use the euro came into force in April 2012
and would have permitted it to issue its own euro coins as early as 1 July 2013, provided
that Andorra implemented relevant EU legislation.
They were expected to issue their first coins on 1 January 2014.
However, EU approval to begin minting the coins was delayed until December 2013, so
the first Andorran coins were delayed, with Minister of Culture Stephen Albert stating
that he was optimistic they would be released by March or April 2014.
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, sometimes the term Eurozone is applied to all territories that have adopted the euro
as their sole currency.
Further unilateral adoption of the euro, by both non-euro EU and non-EU members, is opposed
by the ECB and EU.
Expulsion and secession Although the Eurozone is open to all EU member
states to join once they meet the criteria, the treaty is silent on the matter of states
leaving the Eurozone, neither prohibiting nor permitting it.
Likewise there is no provision for a state to be expelled from the euro.
Some, however, including the Dutch government, favour such a provision being created in the
event that a heavily indebted state in the Eurozone refuses to comply with an EU economic
reform policy.
Jens Dammann has argued that even now EU law contains an implicit right for member states
to leave the Eurozone if they no longer meet the criteria that they had to meet in order
to join the Eurozone.
The benefits of leaving the euro would vary depending on the situation.
If the country's own replacement currency was expected to devalue against the euro,
the state might 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.
One problem is that leaving the euro cannot be achieved very quickly, banknotes must be
printed for example.
So during preparations, a lot of currency might leave the country, and people might
be expected to withdraw euros in cash, causing a bank run.
This would depend on the relative interest rates and depreciation rates.
Administration and representation
The monetary policy of all countries in the Eurozone is managed by the European Central
Bank and the Eurosystem which comprises the ECB and the central banks of the EU states
who have joined the Eurozone.
Countries outside the Eurozone are not represented in these institutions.
Whereas all EU member states are part of the European System of Central Banks.
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 Eurogroup, and is presided over by a president, currently Jeroen Dijsselbloem.
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 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 of 2007–08, the Euro Group has met irregularly not as
finance ministers, but as heads of state and government.
It is in this forum, the Euro summit, that many Eurozone reforms have been decided upon.
In 2011, former French President Nicolas Sarkozy pushed for these summits to become regular
and twice a year in order for it to be a 'true economic government'.
In 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 upon.
Economy Comparison table
^a GDP in PPP, exports/imports of goods and services excluding intra-EU trade.
Inflation HICP figures from the ECB, taken from May
of each year: 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.
Public debt The following table states the ratio of public
debt to GDP in percent for Eurozone countries.
The euro convergence criterion is 60%.
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, 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 Eurozone, 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.
The European Fiscal Compact is a proposal for a treaty about fiscal integration described
in a decision adopted on 9 December 2011 by the European Council.
The participants are the Eurozone member states and all other EU members except for the United
Kingdom.
Treaty text is still to be drafted and participation approvals from national parliaments are still
to be granted.
Bailout provisions
The late-2000s financial crisis 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 and the European Financial Stability Mechanism
were created in 2010 to provide, alongside the International Monetary Fund, a system
and fund to bail out 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 which would
be much larger, funded only by Eurozone states 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 operational
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, a broad agreement was finally reached
on a controversial proposal for member states to peer review each other's budgets prior
to their presentation to national parliaments.
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.
See also
Sixpack Special member state territories and the European
Union Notes
References
External links Eurozone official portal
European Central Bank Central Bank Rates, ECB Key Rate, chart and
data European Commission – Economic and Financial
Affairs – Eurozone Media related to Eurozone at Wikimedia Commons