Eurozone
The Eurozone (officially euro area,[As used by the ECB, for instance on this Governing Council page] informally and sometimes derogatory 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 economy in the world.
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 with Cyprus and Malta joining on 1 January 2008. Currently there are 15 member states with over 320 million people in the Eurozone:
Enlargement
The twelve countries of the European Union that do not use the euro are: Denmark, Sweden, the United Kingdom, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. The next enlargement will be to Slovakia in 2009.
Denmark and the United Kingdom obtained 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. The current Danish government has announced plans to hold a referendum on the issue following the adoption of the Treaty of Lisbon.[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]
Sweden has gained a de facto opt-out in exploiting a legal loophole by not working to meet the criteria to join, and hence not being able to adopt the currency as it is obliged to. This was due to the Swedish public rejecting eurozone membership in a referendum and is tolerated by the Commission, but the Commission has stated it would not be lenient on any future members attempting the same route.
Before a state can join the eurozone, it must spend two years in the European Exchange Rate Mechanism (ERM II). As of 1 January 2008, five National Central Banks (NCBs) participate in the mechanism (see table below). The remaining currencies are expected to follow as soon as they meet the criteria.
Poland and Romania have the longest time tables, seeing adoption beyond 2013. Estonia has battled problems with inflation, and this prevented its plan to adopt the euro in 2007, with 2011 now being the estimated date. Some EU nations are also experiencing economic difficulties, thus delaying the estimated dates for adopting the euro.
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 San Marinese lira) and Monaco used the Monegasque franc, which was pegged on a 1:1 basis to the French franc.[The euro outside the euro area, Europa (web portal)]
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).
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.[The euro outside the euro area, Europa (web portal)] Agreements concerning the French territorial communities
On 22nd 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
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.
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 euro already in circulation.[Euro used as legal tender in non-EU nations International Herald Tribune (2007-01-01)][KOUCHNER SIGNS REGULATION ON FOREIGN CURRENCY, UNMIK] Kosovo also still uses the Serbian dinar in areas mainly populated by the Serbian minority.[Kosovo - Economic profile, Europa (web portal)]
The use of the euro in Montengro 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 or 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.
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 part 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.[Theodoulou, Michael (2007-12-27Euro reaches field that is for ever England, Times Online] 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.[Hadjicostis, Menelaos (2007-12-30) In north Cyprus, the Turkish lira is the official currency, but euro is embraced, International Herald Tribune] 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.[Smith, Helena (2008-01-02) Arrival of euro boosts Cyprus peace hopes, The Guardian]
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.
As trading 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.
Prior to the 2003 invasion of Iraq, President Saddam Hussein announced that he intended to price Iraqi oil in the euro rather than U.S. dollars, since the majority of Iraqi oil trade was with the EU, India and China rather than the United States.
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.
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 January 1, 2005, until December 31, 2006, and was re-appointed for a second term in September 2006.
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.[Vucheva, Elitsa (2008-04-15)Eurozone countries should speak with one voice, Juncker says, EU Observer.]
However Commissioner Joaquin Almunia stated that before there is common representation, a common political agenda should be agreed.
Economy
Comparison of Eurozone with other economies, all figures from 2006.[What is EMU?, Europa (web portal)]
(*) Excluding intra-EU trade.
Inflation
HICP figures from the ECB;
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.[Key ECB interest rates, ECB]
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 March 20 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.
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
External links
European Central Bank
Eurozone Watch
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