Eurozone

Euro area
Policy of European Union
TypeMonetary union
CurrencyEuro
Established1 January 1999
Members
Governance
Political controlEurogroup
Group presidentMário Centeno
Issuing authorityEuropean Central Bank
ECB presidentMario Draghi
Statistics
Area2,753,828 km2
Population(2019)341,925,002 Increase[1]
Density124/km2
GDP (Nominal)(2018)Total: €11.6 (~US$13.0) trillion
Per capita: €33,900 (~US$38,000)[2]
Interest rate-0.50%[3]
Inflation0.2%[4]
Unemployment(2019)7.5%[5]
Trade balance€0.2 trillion trade surplus[6]
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The eurozone, officially called the euro area,[7] is a monetary union of 19 of the 28 European Union (EU) member states which have adopted the euro () as their common currency and sole legal tender. The monetary authority of the eurozone is the Eurosystem. The other nine members of the European Union continue to use their own national currencies, although most of them are obliged to adopt the euro in the future.

The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so.[8] No state has left, and there are no provisions to do so or to be expelled.[9] Andorra, Monaco, San Marino, and Vatican City have formal agreements with the EU to use the euro as their official currency and issue their own coins.[10][11][12] Kosovo and Montenegro have adopted the euro unilaterally,[13] but these countries do not officially form part of the eurozone and do not have representation in the European Central Bank (ECB) or in the Eurogroup.[14]

The ECB, which is governed by a president and a board of the heads of national central banks, sets the monetary policy of the zone. 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 enacting 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 change.

Territory

European Union 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 (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 2015, seven new states acceded.

State Adopted Population[1]
2019
Nominal GNI
2014
(USD,
millions)[15]
Relative GNI
of total, nominal
GNI per
capita
nominal,
2014 (USD)
[16]
Pre-euro
currency
Exceptions ISO
code
 Austria 1999-01-01[17] 8,858,775 423,906 3.18% 49,670 Schilling AT
 Belgium 1999-01-01[17] 11,467,923 530,558 4.18% 47,260 Franc BE
 Cyprus 2008-01-01[18] 875,898 22,519 0.18% 26,370 Pound  Northern Cyprus[a] CY
 Estonia 2011-01-01[19] 1,324,820 24,994 0.20% 19,030 Kroon EE
 Finland 1999-01-01[17] 5,517,919 264,554 2.08% 48,420 Markka FI
 France 1999-01-01[17] 67,028,048 2,844,284 22.39% 42,960 Franc  New Caledonia[b]
 French Polynesia[b]
 Wallis and Futuna[b]
FR
 Germany 1999-01-01[17] 83,019,214 3,853,623 30.34% 47,640 Mark DE
 Greece 2001-01-01[20] 10,722,287 250,095 1.97% 22,680 Drachma GR
 Ireland 1999-01-01[17] 4,904,226 214,711 1.69% 46,550 Pound IE
 Italy 1999-01-01[17] 60,359,546 2,147,247 16.91% 34,270 Lira Flag of Campione d'Italia.svg Campione d'Italia[c] IT
 Latvia 2014-01-01[21] 1,919,968 30,413 0.24% 15,280 Lats LV
 Lithuania 2015-01-01[22] 2,794,184 45,185 0.36% 15,430 Litas LT
 Luxembourg 1999-01-01[17] 613,894 42,256 0.33% 75,990 Franc LU
 Malta 2008-01-01[23] 493,559 8,889 0.07% 21,000 Lira MT
 Netherlands 1999-01-01[17] 17,282,163 874,590 6.89% 51,890 Guilder  Aruba[d]
Curaçao Curaçao[e]
Sint Maarten Sint Maarten[e]
Netherlands Caribbean Netherlands[f]
NL
 Portugal 1999-01-01[17] 10,276,617 222,126 1.75% 21,360 Escudo PT
 Slovakia 2009-01-01[24] 5,450,421 96,200 0.76% 17,750 Koruna SK
 Slovenia 2007-01-01[25] 2,080,908 48,625 0.38% 23,580 Tolar SI
 Spain 1999-01-01[17] 46,934,632 1,366,027 10.75% 29,440 Peseta ES
European Union Eurozone 341,925,002 13,265,378 100% 39,162 N/A N/A EZ[g]

Dependent territories of EU member states — outside EU

Five of the dependent territories of EU member states not part of the EU, have adopted the euro:

Non-member usage

Eurozone participation
eurozone.
  7 not in ERM II, but obliged to join the eurozone on meeting convergence criteria (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, and Sweden).
  1 in ERM II, with an opt-out (Denmark).
  1 not in ERM II with an opt-out (United Kingdom).
Non-EU member states
  4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City).
  2 using the euro unilaterally (Kosovo[h] and Montenegro).

With formal agreement

The euro is also used in countries outside the EU. Four states – Andorra, Monaco, San Marino, and Vatican City —[10][13] 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.

Several currencies are pegged to the euro, some of them with a fluctuation band and others with an exact rate. For example, the West African and Central African CFA francs are pegged exactly at 655.957 CFA to 1 EUR. In 1998, in anticipation of Economic and Monetary Union of the European Union, the Council of the European Union addressed the monetary agreements France had with the CFA Zone and Comoros and ruled that the ECB had no obligation towards the convertibility of the CFA and Comorian francs. The responsibility of the free convertibility remained in the French Treasury.

Other

Kosovo[i] and Montenegro officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights.[13] 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.[26][27][28] Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.[29]

Historical eurozone enlargements and exchange-rate regimes for EU members

The chart below provides a full summary of all applying exchange-rate regimes for EU members, since the European Monetary System with its Exchange Rate Mechanism and the related new common currency ECU was born on 13 March 1979. The euro replaced the ECU 1:1 at the exchange rate markets, on 1 January 1999. During 1979-1999, the D-Mark functioned as a de facto anchor for the ECU, meaning there was only a minor difference between pegging a currency against ECU and pegging it against the D-mark.

Sources: EC convergence reports 1996-2014, Italian lira[UK pound

The eurozone was born with its first 11 member states on 1 January 1999. The first enlargement of the eurozone, to Greece, took place on 1 January 2001, one year before the euro had physically entered into circulation. The next enlargements were to states which joined the EU in 2004, and then joined the eurozone on 1 January in the year noted: Slovenia (2007), Cyprus (2008), Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014), and Lithuania (2015).

All new EU members joining the bloc after the signing of the Maastricht treaty in 1992 are obliged to adopt the euro under the terms of their accession treaties. However, the last of the five economic convergence criteria which need first to be complied with in order to qualify for euro adoption, is the exchange rate stability criterion, which requires having been an ERM-member for a minimum of two years without the presence of "severe tensions" for the currency exchange rate.

In September 2011, a diplomatic source close to the euro adoption preparation talks with the seven remaining new member states who had yet to adopt the euro (Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania), claimed that the monetary union (eurozone) they had thought they were going to join upon their signing of the accession treaty may very well end up being a very different union entailing much closer fiscal, economic and political convergence. This changed legal status of the eurozone could potentially cause them to conclude that the conditions for their promise to join were no longer valid, which "could force them to stage new referendums" on euro adoption.[30]

Country Old unit Exchange rate
(Euro in units of old currency)
Year
Belgium Belgian franc 40.3399 1999
Luxembourg Luxembourgish franc 40.3399 1999
Germany Deutsche Mark 1.95583 1999
Spain, Andorra[j] Spanish peseta 166.386 1999
France, Monaco, Andorra[j] French franc 6.55957 1999
Ireland Irish pound 0.787564 1999
Italy, San Marino, Vatican City Italian lira 1936.27 1999
Netherlands Dutch guilder 2.20371 1999
Austria Austrian schilling 13.7603 1999
Portugal Portuguese escudo 200.482 1999
Finland Finnish markka 5.94573 1999
Greece Greek drachma 340.75 2001
Slovenia Slovenian tolar 239.64 2007
Cyprus Cypriot pound 0.585274 2008
Malta Maltese lira 0.4293 2008
Slovakia Slovak koruna 30.126 2009
Estonia Estonian kroon 15.6466 2011
Latvia Latvian lats 0.702804 2014
Lithuania Lithuanian litas 3.4528 2015

Future enlargement

Council of EuropeSchengen AreaEuropean Free Trade AssociationEuropean Economic AreaEurozoneEuropean UnionEuropean Union Customs UnionAgreement with EU to mint eurosGUAMCentral European Free Trade AgreementNordic CouncilBaltic AssemblyBeneluxVisegrád GroupCommon Travel AreaOrganization of the Black Sea Economic CooperationUnion StateSwitzerlandIcelandNorwayLiechtensteinSwedenDenmarkFinlandPolandCzech RepublicHungarySlovakiaGreeceEstoniaLatviaLithuaniaBelgiumNetherlandsLuxembourgItalyFranceSpainAustriaGermanyPortugalSloveniaMaltaCyprusIrelandUnited KingdomCroatiaRomaniaBulgariaTurkeyMonacoAndorraSan MarinoVatican CityGeorgiaUkraineAzerbaijanMoldovaArmeniaRussiaBelarusSerbiaAlbaniaMontenegroNorth MacedoniaBosnia and HerzegovinaKosovo (UNMIK)
A clickable Euler diagram showing the relationships between various multinational European organisations and agreements.

Nine countries (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, 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 January 2017, only the National Central Bank (NCB) of Denmark participates 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.

The other seven countries are obliged to adopt the euro in future, although the EU has so far not tried to enforce any time plan. They should join as soon as they fulfill the convergence criteria, which include being part of ERM II for two years. Sweden, which joined the EU in 1995 after the Maastricht Treaty was signed, is required to join the eurozone. However, the Swedish people turned down euro adoption in a 2003 referendum and since then the country has intentionally avoided fulfilling the adoption requirements by not joining ERM II, which is voluntary.[31][32]

Interest in joining the eurozone increased in Denmark, and initially in Poland, as a result of the 2008 financial crisis. In Iceland, there was an increase in interest in joining the European Union, a pre-condition for adopting the euro.[33] However, by 2010 the debt crisis in the eurozone caused interest from Poland, as well as the Czech Republic, to cool.[34] Latvia adopted the Euro in 2014, followed by Lithuania in 2015.[35]

Expulsion and withdrawal

In the opinion of journalist Leigh Phillips and Locke Lord's Charles Proctor,[36][37] there is no provision in any European Union treaty for an exit from the eurozone. In fact, they argued, the Treaties make it clear that the process of monetary union was intended to be "irreversible" and "irrevocable."[37] However, in 2009, a European Central Bank legal study argued that, while voluntary withdrawal is legally not possible, expulsion remains "conceivable."[38] Although an explicit provision for an exit option does not exist, many experts and politicians in Europe, have suggested an option to leave the Eurozone should be included in the relevant treaties.[39]

On the issue of leaving the eurozone, the European Commission has stated that "[t]he irrevocability of membership in the euro area is an integral part of the Treaty framework and the Commission, as a guardian of the EU Treaties, intends to fully respect [that irrevocability]."[40] It added that it "does not intend to propose [any] amendment" to the relevant Treaties, the current status being "the best way going forward to increase the resilience of euro area Member States to potential economic and financial crises.[40] The European Central Bank, responding to a question by a Member of the European Parliament, has stated that an exit is not allowed under the Treaties.[41]

Likewise there is no provision for a state to be expelled from the euro.[42] Some, however, including the Dutch government, favour the creation of an expulsion provision for the case whereby a heavily indebted state in the eurozone refuses to comply with an EU economic reform policy.[43]

In a Texas law journal, University of Texas at Austin law professor 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 it.[44] Furthermore, he has suggested that, under narrow circumstances, the European Union can expel member states from the eurozone.[45]

University of California, Berkeley professor of Economics and Political Science Barry Eichengreen, argued in 2007 that "Europe’s leap to monetary union was a mistake...compounded by...including [in the union] also...Italy, Spain, Portugal and Greece," and that "although a breakup was not impossible...it was unlikely," given the technical, political and above all economic obstacles. "On the first minute that word got out," Eisengreen argued, "that the [Greek] government was discussing the possibility [of a Grexit] investors would sell their Greek stocks and bonds" and there "would be a full-fledged financial panic... a full-out bank run."[46] In 2011, he still believed the probability of Grexit was "very low" and in case of any bank run "the Greek government would almost certainly receive support for its banks from its European Union partners and the European Central Bank, because, in his view, more financial crises in other European countries are... the last thing that German business wants." As he put it, "the German economic miracle of the last ten years can be summed up in one word: exports. And the country’s export competitiveness has been greatly enhanced by a euro exchange rate that has been kept down at reasonable levels by the fact that Germany shares the currency with other weaker economies."[46]

In Greece's case, one additional obstacle presented by analysts is that if Greece were to replace the euro with a new national currency, this would not be possible to achieve quickly enough. Paper banknotes must be printed and coins minted, which would take about "six months."[47] The changeover, according to a blogger in The Economist, would likely require bank deposits to be converted from euros to the new currency and this prospect could lead to money leaving the country as well as Greek residents withdrawing cash from the banks, causing a bank run and necessitating capital controls.[48]

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