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May 5, 2008

Wikipedia: Eurozone

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The Eurozone (less frequently called the Euro Area or 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, being a contender to the United States Dollar as the world’s reserve currency.

Taking official estimates of 2007 GDP, The Eurozone is the largest economy in the world.[1][2][3][4]

Contents

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:

     EU Eurozone      EU state aiming to join Eurozone on 1 January 2009 (Slovakia)      EU states obliged to ultimately join the Eurozone      EU state with an opt-out on Eurozone participation (U.K.)      EU state planning to hold a referendum on the euro and with an opt-out on Eurozone participation (Denmark)      Areas outside the EU using the euro with an agreement      Areas outside the EU using the euro without an agreement  v • d • e

EU Eurozone EU state aiming to join Eurozone on 1 January 2009 (Slovakia) EU states obliged to ultimately join the Eurozone EU state with an opt-out on Eurozone participation (U.K.) EU state planning to hold a referendum on the euro and with an opt-out on Eurozone participation (Denmark) Areas outside the EU using the euro with an agreement Areas outside the EU using the euro without an agreement v d e

State Adopted Population Exceptions
Flag of Austria Austria 01999-01-01 1 January 1999 &&&&&&&&08316487.&&&&&08,316,487
Flag of Belgium Belgium 01999-01-01 1 January 1999 &&&&&&&010584534.&&&&&010,584,534
Flag of Cyprus Cyprus 02008-01-01 1 January 2008 &&&&&&&&&0766400.&&&&&0766,400 Flag of the Turkish Republic of Northern Cyprus Northern Cyprus[5]
Flag of Finland Finland 01999-01-01 1 January 1999 &&&&&&&&05289128.&&&&&05,289,128
Flag of France France 01999-01-01 1 January 1999 &&&&&&&063392140.&&&&&063,392,140 Flag of New Caledonia New Caledonia[6]
Flag of French Polynesia French Polynesia[6]
Flag of Wallis and Futuna Wallis and Futuna
Flag of Germany Germany 01999-01-01 1 January 1999 &&&&&&&082314906.&&&&&082,314,906
Flag of Greece Greece 02001-01-01 1 January 2001 &&&&&&&011125179.&&&&&011,125,179
Flag of Ireland Ireland 01999-01-01 1 January 1999 &&&&&&&&04239848.&&&&&04,239,848
Flag of Italy Italy 01999-01-01 1 January 1999 &&&&&&&059131287.&&&&&059,131,287
Flag of Luxembourg Luxembourg 01999-01-01 1 January 1999 &&&&&&&&&0476200.&&&&&0476,200
Flag of Malta Malta 02008-01-01 1 January 2008 &&&&&&&&&0404962.&&&&&0404,962
Flag of the Netherlands Netherlands 01999-01-01 1 January 1999 &&&&&&&016372715.&&&&&016,372,715 Flag of Aruba Aruba[7]
Flag of the Netherlands Antilles Netherlands Antilles[8]
Flag of Portugal Portugal 01999-01-01 1 January 1999 &&&&&&&010599095.&&&&&010,599,095
Flag of Slovenia Slovenia 02007-01-01 1 January 2007 &&&&&&&&02013597.&&&&&02,013,597
Flag of Spain Spain 01999-01-01 1 January 1999 &&&&&&&045116894.&&&&&045,116,894
Flag of Europe Eurozone &&&&&&0320143372.&&&&&0320,143,372

Enlargement

Main article: Enlargement of the eurozone
     Eurozone countries      ERM II members      EU member with currency pegged to the euro (Bulgaria)      EU members with free-floating currencies      non-EU members with free-floating currencies      non-EU members using the euro (Montenegro, Kosovo, Andorra, UK Sovereign Base Areas)      non-EU member with currency pegged to the euro (Bosnia and Herzegovina)

Eurozone countries ERM II members EU member with currency pegged to the euro (Bulgaria) EU members with free-floating currencies non-EU members with free-floating currencies non-EU members using the euro (Montenegro, Kosovo, Andorra, UK Sovereign Base Areas) non-EU member with currency pegged to the euro (Bosnia and Herzegovina)

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 is expected to be 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.[9][10][11]

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 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. Other countries are facing inflation problems, which has pushed Estonia’s adoption from 2007 back to 2011 (estimated). Other countries are also experiencing economic and spending problems pushing back their original estimates.

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. 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.[12][13]

State/Territory Adopted Agreement Population
Flag of Mayotte Mayotte 01999-01-01 1 January 1999 [citation needed] &&&&&&&&&0186452.&&&&&0186,452
Flag of Monaco Monaco 01999-01-01 1 January 1999 01998-12-31 31 December 1998 &&&&&&&&&&032671.&&&&&032,671
Flag of San Marino San Marino 01999-01-01 1 January 1999 01998-12-31 31 December 1998 &&&&&&&&&&029615.&&&&&029,615
Flag of Saint Pierre and Miquelon Saint Pierre and Miquelon 01999-01-01 1 January 1999 [citation needed] &&&&&&&&&&&06125.&&&&&06,125
Flag of the Vatican City Vatican City 01999-01-01 1 January 1999 01998-12-31 31 December 1998 &&&&&&&&&&&&0800.&&&&&0800

These countries concluded agreements with EU and member states (Italy in the case of San Marino and Vatican City, 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).[12][13]

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. They are, however, not allowed to mint any coins of their own.[13]

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 January 2008, this has not yet happened, partially due to stalling over bank secrets in December 2005.[14]

State/Territory Adopted Seeking Population
Flag of the United Kingdom Akrotiri and Dhekelia 02008-01-01 1 January 2008 None &&&&&&&&&&014500.&&&&&014,500
Flag of Andorra Andorra 1278 / 02002-01-01 1 January 2002
French franc and Spanish peseta dual circulation since sovereignity established / EUR
Agreement &&&&&&&&&&082000.&&&&&082,000
Flag of Kosovo Kosovo 01999-09-02 2 September 1999 / 02002-01-01 1 January 2002
DM/EUR semi-official; other currencies and YUM also accepted [1] [2]
Membership &&&&&&&&&01.9E+6.&&&&&01,900,000
Flag of Montenegro Montenegro 01999-11-06 6 November 1999 / 02002-01-01 1 January 2002
DM/EUR official; dual circulation with YUM until 13/11/2000
Membership &&&&&&&&&0684736.&&&&&0684,736
Flag of Saint Barthélemy Saint-Barthélemy 02007-02-22 22 February 2007 None[citation needed] &&&&&&&&&&&08450.&&&&&08,450
Flag of France Saint-Martin 02007-02-22 22 February 2007 None[citation needed] &&&&&&&&&&033102.&&&&&033,102

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 received western help in adopting and using the Mark. They switched to the euro when the mark was replaced but have no agreement with the ECB, rather the country depends only on those euros already in circulation.[15] Kosovo also still uses the Serbian dinar in areas mainly populated by the Serbian minority.[16] The use of the euro in these provinces 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 while ECB President Jean-Claude Trichet has stated the ECB, which does not grant representation to those who unilaterally adopt the euro, does not support or deter those who wish to use the currency. Some in the Turkish Republic of Northern Cyprus (TRNC) have called for the unilateral adoption of the euro by the state.[15]

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, including currency, has been aligned with that of the Republic of Cyprus, leading to the euro’s adoption there.[17] 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 Cyprus, usage of the euro is expected to be high with cross border trade already prompting widespread use of the Cypriot pound and the euro. Use of the euro is seen as a way to boost intra-Cypriot trade and reduce dependence on Turkey.[18] 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.[19]

Iceland’s former foreign minister Valgerður Sverrisdóttir has said in an interview on 15 January 2007 that she seriously wishes to look into whether Iceland can join the Euro without being a member of the EU. She believes it is difficult to maintain an independent currency in a small economy on the open European market.[20] 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.[21]

As trading currency

In 1998, Cuba announced that it would replace the U.S. dollar with the euro as its official currency for international trading.[22] On 1 December 2002, North Korea did the same. (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.) Syria followed suit in 2006.[23]

Prior to the 2003 invasion of Iraq, President Saddam Hussein announced that he intended to price Iraqi oil in euros, rather than U.S. dollars, since the majority of Iraqi oil trade was with the EU, India and China, not with the United States.

Non-EU currencies pegged to the euro

Main article: Currencies related 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, Spain
Other European countries and territories using the euro 3 million Akrotiri and Dhekelia, Andorra, Kosovo, Montenegro, Monaco, San Marino, Vatican City
Non-European, non-EU territories using the euro 207 thousand Clipperton Island, French Southern and Antarctic Lands, Mayotte, Saint Pierre and Miquelon
EU countries with currencies pegged to the euro (or at a narrow margin) 26 million Bulgaria, Denmark, Estonia, Latvia, Lithuania, 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, Togo
Pacific Island nations using the CFP franc 0.5 million French Polynesia, New Caledonia, Wallis and Futuna
Other countries and territories with currencies pegged to the euro 35 million Cape Verde, Comoros, Morocco
Total 500 million 44 countries and 5 areas.

Eurogroup

Jean-Claude Juncker is the incumbent Eurogroup president

Jean-Claude Juncker is the incumbent Eurogroup president

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.[24]

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.[25]

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.

Jean-Claude Juncker. Brussels, 15 April 2008[25]

However Commissioner Joaquin Almunia stated that before there is common representation, a common political agenda should be agreed.[25]

Economy

Comparison of Eurozone with other economies, all figures from 2006.[26]

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;[27]

  • Mid 1999: 1%
  • Mid 2000: 2%
  • Mid 2001: 2.8%
  • Mid 2002: 1.9%
  • Mid 2003: 1.9%
  • May 2004: 2.5%
  • May 2005: 2.0%
  • May 2006: 2.5%
  • May 2007: 1.9%
  • Nov 2007: 3.1%

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.[28]

Date Deposit facility Main refinancing operations Marginal lending facility
1999-01-01 2.00 3.00 4.50
1999-01-04[29] 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
2006-12-13 2.50 3.50 4.50
2006-10-11 2.25 3.25 4.25
2006-08-09 2.00 3.00 4.00
2006-06-15 1.75 2.75 3.75
2006-03-08 1.50 2.50 3.50
2007-03-14 2.75 3.75 4.75
2007-06-13 3.00 4.00 5.00

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. [3]

See also

European Union Portal
  • Economy of the European Union
  • European Central Bank
  • Economic and Monetary Union of the European Union
  • Special member state territories and the European Union
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