Eurozone
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The Eurozone (officially euro area,[1] or informally Euroland) refers to a currency union among the European Union member states that have adopted the euro as their sole official currency. The Eurosystem, headed by the European Central Bank, is responsible for monetary policy within the Eurozone.
The Eurozone has fifteen members, with a further nine states and territories using it as their sole currency. It circulates widely beyond that, and has started to serve as a reserve currency.
Based on official estimates of 2007 GDP, the Eurozone is the largest or second-largest economy in the world.[2]
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Members
In 1998 eleven 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. Physical coins and banknotes were introduced on 1 January 2002. Slovenia qualified in 2006 and was admitted on 1 January 2007. Cyprus and Malta joined on 1 January 2008. Slovakia qualified in 2008 and will join on 1 January 2009. At the moment there are 15 member states with over 320 million people in the Eurozone:
| State | Adopted | Population | Exceptions | |
|---|---|---|---|---|
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Austria | 1 January 1999 | 8,316,487 | |
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Belgium | 1 January 1999 | 10,666,866 | |
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Cyprus | 1 January 2008 | 766,400 |  Northern Cyprus[3] |
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Finland | 1 January 1999 | 5,289,128 | |
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France | 1 January 1999 | 63,392,140 | New Caledonia[4] French Polynesia[4] Wallis and Futuna[4] |
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Germany | 1 January 1999 | 82,314,906 | |
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Greece | 1 January 2001 | 11,125,179 | |
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Ireland | 1 January 1999 | 4,239,848 | |
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Italy | 1 January 1999 | 59,131,287 | |
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Luxembourg | 1 January 1999 | 476,200 | |
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Malta | 1 January 2008 | 404,962 | |
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Netherlands | 1 January 1999 | 16,372,715 |  Aruba[5] Netherlands Antilles[6] |
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Portugal | 1 January 1999 | 10,599,095 | |
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Slovenia | 1 January 2007 | 2,013,597 | |
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Spain | 1 January 1999 | 45,116,894 | |
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Eurozone | 320,143,372 | ||
Enlargement
Twelve countries of the European Union currently do not use the euro. They are: Denmark, Sweden, the United Kingdom, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. Slovakia joins the Eurozone on 1 January 2009.
Denmark and the United Kingdom obtained special opt-outs in the original Maastricht Treaty of the European Union. Both countries are legally exempt from joining the Eurozone unless their governments decide otherwise, either by parliamentary vote or referendum. The current Danish government has announced plans to hold a referendum on the issue following the adoption of the Treaty of Lisbon.[7][8][9]
Sweden gained a de facto opt-out by exploiting a legal loophole. It does not work to meet the criteria to join, and so is not able to adopt the currency as it is obliged to. This is because the Swedish public rejected the euro in a referendum. The Commission tolerates this, but it stated that it would not be lenient on any future members attempting this action.
Before a state can join the Eurozone, it must spend two years in the European Exchange Rate Mechanism (ERM II). At 1 January 2008, five National Central Banks (NCBs) participated in the mechanism (see table below). The remaining currencies are expected to follow as soon as they meet the criteria.
Romania has one of the longest time tables, seeing adoption beyond 2013. Estonia had problems with inflation that prevented it adopting the euro in 2007; the estimated date is now 2011. Some recent analysis says that Bulgaria will not be able to join earlier than 2015, due to their inflation problems and the impact of the global financial crisis of 2008.[10]
On 10 September 2008, speaking at the launch of an economic forum in a Polish resort of Krynica-Zdrój, Polish Prime Minister Donald Tusk announced the ruling government's objective to join the Eurozone in 2012, by holding a referendum in 2010 and been approved by the European Central Bank in 2011.[11][12][13] However, since the Polish constitution will need to change first[14] and they will have to join the ERM 2 before second quarter 2009[15], this target date is still very aggressive.
The 2008 financial crisis has increased interest in Denmark and Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro.[16]
On the other hand, since Latvia is asking for help to the IMF, it is possible that the IMF will force Latvia to give up its currency peg as a precondition; taking officially Latvia out of the ERM II and possible moving the euro adoption date even further than 2013 as currently planned.[17]
Use outside the Union
With formal agreements
Certain states outside the EU have adopted the euro as their currency. For formal adoption, including the right to mint their own coins, a monetary agreement must be concluded. Agreements have been concluded with Monaco, San Marino, and Vatican City. All of these states previously used versions of yielded member state currencies. The Vatican and San Marino had their currencies pegged to the Italian lira (Vatican and Sammarinese lira) and Monaco used the Monegasque franc, which was pegged on a 1:1 basis to the French franc.[18][19]
| State/Territory | Adopted | Agreement | Population | |
|---|---|---|---|---|
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Mayotte | 1 January 1999 | 31 December 1998 | 186,452 |
 |
Monaco | 1 January 1999 | 31 December 1998 | 32,671 |
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San Marino | 1 January 1999 | 31 December 1998 | 29,615 |
 |
Saint Pierre and Miquelon | 1 January 1999 | 31 December 1998 | 6,125 |
 |
Vatican City | 1 January 1999 | 31 December 1998 | 800 |
These countries concluded agreements with EU and member states: (Italy in the case of San Marino and Vatican City and France in the case of Monaco) allowing them to use and mint a limited amount of euro (with their own national symbols on the obverse side) to be valid throughout the Eurozone. They do not however print banknotes. A similar agreement is being conducted with Andorra (see below).[18][19]
Agreements were also concluded for two overseas territories of France. Saint-Pierre-et-Miquelon off the coast of Canada, and Mayotte in the Indian Ocean are outside the EU but have been allowed to use the euro as their currency. However, they are not allowed to mint any coins.[20][21]
On 22 February 2007, Saint Barthélemy and Saint Martin were politically separated from Guadeloupe in order to form two new French overseas collectivities; they are in legal limbo until ratification of the Treaty of Lisbon.
Without formal agreements
- Further information: Kosovo and the euro, Montenegro and the euro, Andorran euro coins, and Iceland and the European Union
| State/Territory | Adopted | Seeking | Population | |
|---|---|---|---|---|
 |
Akrotiri and Dhekelia | 1 January 2008 | None | 14,500 |
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Andorra | 1 January 1999 | Agreement | 82,000 |
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Kosovo | 1 January 2002 | Membership | 2,100,000 |
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Montenegro | 1 January 2002 | Membership | 684,736 |
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Saint Barthélemy | 1 January 1999 | None | 8,450 |
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Saint Martin | 1 January 1999 | None | 33,102 |
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 June 2008, this has not yet happened, partially due to stalling regarding banking secrecy in December 2005.[22]
Montenegro and Kosovo have also used the euro since its launch, as they previously used the German mark rather than the Serbian dinar. This was due to political concerns that Serbia would use the currency to destabilise these provinces (Montenegro was then in a union with Serbia) so they received western help in adopting and using the mark (though there was no restriction on the use of the dinar or any other currency). They switched to the euro when the mark was replaced but have no agreement with the ECB; rather the country depends only on euros already in circulation.[23][24] Kosovo also still uses the Serbian dinar in areas mainly populated by the Serbian minority.[25]
The use of the euro in Montenegro and Kosovo has helped stabilise their economies, and for this reason the adoption of the euro by small states has been encouraged by Finance Commissioner Joaquín Almunia. European Central Bank President Jean-Claude Trichet has stated the ECB - which does not grant representation to those who unilaterally adopt the euro - neither supports nor deters those wishing to use the currency. Some in the Turkish Republic of Northern Cyprus (TRNC) have called for the unilateral adoption of the euro by that state.[23]
With the adoption of the euro in Cyprus, the Sovereign Base Areas of Akrotiri and Dhekelia, which had previously used the Cypriot pound, also adopted the euro. The base areas are overseas territories of the United Kingdom, but are outside of the EU and under military jurisdiction. However their laws and currency have been aligned with those of the Republic of Cyprus, leading to the euro's adoption in the two areas.[26] North of the UN-administered buffer zone, the self-declared Turkish Republic of Northern Cyprus (TRNC) still uses the Turkish new lira. The TRNC is unrecognised by any country aside from Turkey but governs the northern part of the island outside of the EU. Despite not adopting the euro along with southern part of Cyprus, use of the euro is seen as a way to boost intra-Cypriot trade and reduce dependence on Turkey.[27] With the use of the euro across the border helping economic integration, the arrival of the euro has been hailed as a major advance in solidifying peace and unification on the island. The Cypriot euro coins, using the Greek and Turkish languages, have been designed to avoid any bias towards any particular area of the island.[28]
Iceland's former foreign minister Valgerður Sverrisdóttir said in an interview on 15 January 2007 that she seriously wished to look into whether Iceland may join the Euro without being a member of the EU. She said that she believed it is difficult to maintain an independent currency in a small economy on the open European market.[29] An extensive poll, released on 11 September 2007, by Capacent Gallup showed that 53% of respondents were in favour of adopting the euro, 37% opposed and 10% undecided.[30]
As second currency
In 1998, Cuba announced that it would replace the U.S. dollar with the euro as its official currency for the purposes of international trading.[31] On 1 December 2002, North Korea did the same. (Its internal currency, the wŏn, is not convertible and thus cannot be used to purchase foreign goods. The euro also enjoys popularity domestically, especially among resident foreigners.) Syria followed suit in 2006.[32]
In 2000, President of Iraq Saddam Hussein began the sale of his country's oil denominated in euros rather than dollars since the majority of Iraqi oil trade was with the EU, India and China rather than the United States. Several other countries stated they would follow suit but when Iraq was invaded in 2003, the new US interim administration immediately switched all sales of oil back to the US dollar. Since then, Iran has maintained its policy of demanding euros from the sale of oil towards Europe and Asia, and plans to set up an oil exchange denominated in euro.
In October 2008, Iceland's government introduced foreign exchange controls, fixing the value of their currency against the euro each day based on an auction system. This gives the country effectively a dual exchange rate, but is intended to protect their national treasury and financial losses by its 3 national banks after the 2008 Icelandic financial crisis and the global economic crisis.[33]
Non-EU currencies pegged to the euro
Cape Verde's currency is pegged to the euro having previously been pegged to the Portuguese escudo. Bosnia and Herzegovina's currency, the convertible mark, is pegged to the euro, having previously been pegged to the German Mark. The CFA and Comorian francs, used in former French colonies, and the CFP franc, used in French Pacific Ocean territories, are pegged to the euro, having previously been pegged to the French franc.
People affected by the euro
| Category | Population | Countries and territories |
|---|---|---|
| Official members | 320 million | Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain. |
| Other European countries and territories using the euro | 3 million | Akrotiri and Dhekelia, Andorra, Kosovo, Montenegro, Monaco, San Marino and Vatican City. (it has further use in trade, see "as second currency" above) |
| Non-European, non-EU territories using the euro | 207 thousand | Clipperton Island, French Southern and Antarctic Lands, Mayotte, and Saint Pierre and Miquelon. |
| EU countries with currencies pegged to the euro (or at a narrow margin) | 26 million | Bulgaria, Denmark, Estonia, Latvia, Lithuania and Slovakia |
| Other European countries with currencies pegged to the euro | 4 million | Bosnia and Herzegovina. |
| African countries using the CFA franc | 110 million | Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Côte d'Ivoire, Equatorial Guinea, Gabon, Guinea-Bissau, Mali, Niger, Republic of the Congo, Sénégal and Togo. |
| Pacific Island nations using the CFP franc | 0.5 million | French Polynesia, New Caledonia and Wallis & Futuna. |
| Other countries and territories with currencies pegged to the euro (or in a basket) | 35 million | Cape Verde, Comoros and Morocco. |
| Total | 500 million | 44 countries and 5 areas. |
Eurogroup
Finance ministers of 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. Legally speaking this group, colloquially called the "Eurogroup", is not an official formation of the Council of the European Union. In September 2004, the Eurogroup decided it should have a semi-permanent president that is to be appointed for a period of two years. Prime Minister and Finance Minister of Luxembourg Jean-Claude Juncker was appointed first president of the Eurogroup, mandated from 1 January 2005, until 31 December 2006, and was re-appointed for a second term in September 2006.[34]
In April 2008, Juncker suggested that the Eurozone should be represented at the International Monetary Fund as a bloc, rather than each member state separately.[35]
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 Commissioner Joaquin Almunia stated that before there is common representation, a common political agenda should be agreed.[35]
Economy
Comparison of Eurozone with other economies, all figures from 2006.[36]
| Bloc/State | Population (millions) | GDP Main (in € trillions calculated at purchasing power parity) | Share of world GDP (% at PPP) | Exports* (goods and services, as % of GDP) | Imports* (goods and services, as % of GDP) |
|---|---|---|---|---|---|
| Eurozone | 317 | 8.4 | 14.6 | 21.7 | 20.9 |
| EU (27) | 494 | 11.9 | 21.0 | 14.3 | 15.0 |
| United States | 300 | 11.2 | 19.7 | 10.8 | 16.6 |
| Japan | 128 | 3.5 | 6.3 | 16.8 | 15.3 |
(*) Excluding intra-EU trade.
Inflation
HICP figures from the ECB;[37]
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Interest rates
Interest rates for the Eurozone, set by the ECB since 1999. Levels are in percentages per annum. Prior to June 2000, the main refinancing operations were fixed rate tenders. This was replaced by variable rate tenders, the figures indicated in the table after that refer to the minimum interest rate at which counterparties may place their bids.[38]
| Date | Deposit facility | Main refinancing operations | Marginal lending facility |
|---|---|---|---|
| 1999-01-01 | 2.00 | 3.00 | 4.50 |
| 1999-01-04[39] | 2.75 | 3.00 | 3.25 |
| 1999-01-22 | 2.00 | 3.00 | 4.50 |
| 1999-04-09 | 1.50 | 2.50 | 3.50 |
| 1999-11-05 | 2.00 | 3.00 | 4.00 |
| 2000-02-04 | 2.25 | 3.25 | 4.25 |
| 2000-03-17 | 2.50 | 3.50 | 4.50 |
| 2000-04-28 | 2.75 | 3.75 | 4.75 |
| 2000-06-09 | 3.25 | 4.25 | 5.25 |
| 2000-06-28 | 3.25 | 4.25 | 5.25 |
| 2000-09-01 | 3.50 | 4.50 | 5.50 |
| 2000-10-06 | 3.75 | 4.75 | 5.75 |
| 2001-05-11 | 3.50 | 4.50 | 5.50 |
| 2001-08-31 | 3.25 | 4.25 | 5.25 |
| 2001-09-18 | 2.75 | 3.75 | 4.75 |
| 2001-11-09 | 2.25 | 3.25 | 4.25 |
| 2002-12-06 | 1.75 | 2.75 | 3.75 |
| 2003-03-07 | 1.50 | 2.50 | 3.50 |
| 2003-06-06 | 1.00 | 2.00 | 3.00 |
| 2005-12-06 | 1.25 | 2.25 | 3.25 |
| 2006-03-08 | 1.50 | 2.50 | 3.50 |
| 2006-06-15 | 1.75 | 2.75 | 3.75 |
| 2006-08-09 | 2.00 | 3.00 | 4.00 |
| 2006-10-11 | 2.25 | 3.25 | 4.25 |
| 2006-12-13 | 2.50 | 3.50 | 4.50 |
| 2007-03-14 | 2.75 | 3.75 | 4.75 |
| 2007-06-13 | 3.00 | 4.00 | 5.00 |
| 2008-07-09 | 3.25 | 4.25 | 5.25 |
| 2008-10-08 | 2.75 | 4.75 | |
| 2008-10-09 | 3.25 | 4.25 | |
| 2008-10-15 | 3.25 | 3.75 | 4.25 |
| 2008-11-12 | 2.75 | 3.25 | 3.75 |
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 15 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 Organization for Economic Cooperation 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 percent, with no improvement in the second quarter, which is expected to show just a 0.4 percent gain.[40]
World financial crisis
The Eurogroup heads of state and government held a financial crisis summit in Paris on 11 October 2008 to define a joint action plan for the eurozone and the European Central Bank to end the turmoil of the global financial crisis.[41]
European Union leaders hammered out a plan to confront the financial crisis which will involve hundreds of billions of euro of new initiatives to head off a feared "meltdown". They agreed a bank rescue plan: governments would buy into banks to boost their finances and guarantee interbank lending . Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems. In the Great Depression, so-called "beggar-thy-neighbour" measures taken unilaterally by countries are considered to have deepened the economic pain.[42]
See also
- Economy of the European Union
- European Central Bank
- Economic and Monetary Union of the European Union
- Special member state territories and the European Union
Notes and references
- ↑ As used by the ECB, for instance on this Governing Council page
- ↑ Depending on the exchange rate used.
"CIA - The World Factbook -- Rank Order - GDP (purchasing power parity)". CIA (20 March 2008). Retrieved on 2008-04-06.
"Weak dollar costs U.S. economy its No. 1 spot". Reuters (14 March 2008). Retrieved on 2008-03-16.
"Weak Dollar Costs U.S. Economy Its World No. 1 Spot". New York Times (14 March 2008). Retrieved on 2008-03-16.
"U.S. No Longer World's Largest Economy". About.com. Retrieved on 2008-03-16. - ↑ The self-declared Turkish Republic of Northern Cyprus is unrecognised by the EU and formally uses the Turkish new lira, however the euro does circulate widely.
- ↑ 4.0 4.1 4.2 French Pacific territories use the CFP franc.
- ↑ Aruba uses the Aruban florin. It is part of the Kingdom of the Netherlands, but not EU.
- ↑ The Netherlands Antilles uses the Antillean guilder. It is part of the Kingdom of the Netherlands, but not the EU. The guilder typically followed the US dollar, but the Netherlands Antilles is to be dissolved with some islands becoming part of the EU. The future currency situation is unclear.
- ↑ Newsvine - Denmark to Hold New Referendum on Euro
- ↑ FT.com / World - Denmark to hold new referendum on euro
- ↑ Denmark to hold second euro referendum - EurActiv.com | EU - European Information on Economy & Euro
- ↑ "Bulgaria’s Eurozone accession drifts away". Retrieved on 2008-11-25.
- ↑ "Poland may hold euro referendum in 2010-Deputy PM". Forbes. Retrieved on 2008-09-19.
- ↑ "Poland may push back euro rollout to 2012". guardian.co.uk. Retrieved on 2008-09-19.
- ↑ "Poland may push back euro rollout to 2012". BizPoland. Retrieved on 2008-09-19.
- ↑ "Polish charter must change before ERM-2". www.fxstreet.com. Retrieved on 2008-09-25.
- ↑ "Poland will have to join ERM-2 at latest in Q2 2009". Forbes. Retrieved on 2008-09-26.
- ↑ Dougherty, Carter (2008-12-01). "Buffeted by financial crisis, countries seek euro's shelter", International Herald Tribune, The New York Times. Retrieved on 2008-12-02.
- ↑ "€5bn question is whether IMF will force Latvia to give up currency peg". Business News Europe. Retrieved on 2008-12-3.
- ↑ 18.0 18.1 "Agreements on monetary relations (Monaco, San Marino, the Vatican and Andorra)". European Communities (2004-09-30). Retrieved on 2006-09-12.
- ↑ 19.0 19.1 The euro outside the euro area, Europa (web portal)
- ↑ The euro outside the euro area, Europa (web portal)
- ↑ [1] Agreements concerning the French territorial communities
- ↑ Boldt, Hans H. and Sant Julià de Lòria (2006-11-15). "Andorranische Euros nicht zu jedem Preis" (in German). Andorra-Intern. Retrieved on 2007-01-03.
- ↑ 23.0 23.1 Euro used as legal tender in non-EU nations International Herald Tribune (2007-01-01)
- ↑ KOUCHNER SIGNS REGULATION ON FOREIGN CURRENCY, UNMIK
- ↑ Kosovo - Economic profile, Europa (web portal)
- ↑ Theodoulou, Michael (2007-12-27Euro reaches field that is for ever England, Times Online
- ↑ Hadjicostis, Menelaos (2007-12-30) In north Cyprus, the Turkish lira is the official currency, but euro is embraced, International Herald Tribune
- ↑ Smith, Helena (2008-01-02) Arrival of euro boosts Cyprus peace hopes, The Guardian
- ↑ Spongenberg, Helena (2007-01-15). "Slovenia celebrates full entry into euro club". Retrieved on 2007-01-16.
- ↑ "Euro support in Iceland hits five-year high", Reuters (2007-09-11). Retrieved on 2008-01-02.
- ↑ "Cuba to adopt Euro in foreign trade", BBC News (1998-11-08). Retrieved on 2008-01-02.
- ↑ "US row leads Syria to snub dollar", BBC News (2006-02-14). Retrieved on 2008-01-02.
- ↑ "Iceland fixes crown at different rate to market", The Irish Times (2008-10-17). Retrieved on 2008-10-18.
- ↑ "Juncker re-elected Eurogroup president, voicing optimism over economic growth", People's Daily (2006-09-09). Retrieved on 2008-01-02.
- ↑ 35.0 35.1 35.2 Vucheva, Elitsa (2008-04-15)Eurozone countries should speak with one voice, Juncker says, EU Observer.
- ↑ What is EMU?, Europa (web portal)
- ↑ European Central Bank (2007-12-14). "Euro area (changing composition) - HICP - Overall index, Annual rate of change, Eurostat, Neither seasonally or working day adjusted". Retrieved on 2008-01-02.
- ↑ Key ECB interest rates, ECB
- ↑ The ECB announced on 1998-12-22 that, between 4-21 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.
- ↑ http://edition.cnn.com/2008/BUSINESS/03/20/oecd.recession.ap/index.html
- ↑ http://www.ttc.org/200810101836.m9aiadw08410.htm
- ↑ http://www.eubusiness.com/news-eu/1223856121.86
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