Euroland

The Eurozone (also called Euro-area or Euroland) is the set of countries of the European Union which have adopted the Euro (€) currency.

Countries with the Euro as currency

Official members

There are 12 members in the eurozone: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain.

The European Central Bank is responsible for the monetary policy within the eurozone.

Nations with formal agreements with the EU

Monaco, San Marino, and Vatican City also use the euro, although they are not officially euro members nor members of the EU. (They previously used currencies that were replaced by the euro.) They now mint their own coins, with their own national symbols on the reverse. These countries use the euro by virtue of agreements concluded with EU member states (Italy in the case of San Marino and Vatican City, France in the case of Monaco), approved by the Council of the European Union.

Nations without formal agreements with the EU

Andorra does not have specific euro coins, since it previously used the French franc and Spanish peseta as legal tender currency. There is no formal arrangement with the EU, but with Spain and France.

Likewise, Montenegro and Kosovo, which used to have the German mark as their de facto currency, also adopted the euro without having entered into any legal arrangements with the EU explicitly permitting them to do so.

Other nations

Non-Eurozone EU countries

The other 13 countries of the European Union that do not use the euro are: Cyprus, Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Sweden, and the United Kingdom.

Denmark and the United Kingdom got special derogations in the original Maastricht Treaty of the European Union. Both countries are not legally required to join the euro unless their governments decide otherwise, either by parliamentary vote or referendum.

The ten member states that joined the Union on 1 May 2004 should be adopting the euro as soon as appropriate guidelines are met, although this is unlikely before 2007-2008 at the earliest, with some states joining earlier than others. For these new member states, the single currency was "part of the package" of European Union membership – unlike the UK and Denmark, there is no "opt out" permitted. Sweden also has no opt-out, but its government has made no moves towards fufilling criteria for joining.

Showing the ability to move towards full economic and monetary union is one requisite of "good membership". The ECB and European Commission produce reports every two years analysing the economic and other conditions of non-Eurozone EU members, reporting on their suitability for joining the euro. The first to include the 10 new members will be in October of 2004 .

Inside ERMII

As of 1 May 2004, the ten National Central Banks (NCBs) of the member countries are party to the second European Exchange Rate Mechanism (ERM II) .

On 28 June 2004, Estonia, Lithuania and Slovenia joined Denmark in the mechanism .

Denmark

The danish krone entered the ERMII in 1999, when the euro was created. Since then, it floats against the euro in +-15% range.

In Denmark a referendum on joining the euro was held on September 28, 2000, resulting in a 53.2% vote against joining. It is uncertain if a new referendum will be held in the near future.

Note: should Denmark join the euro, Greenland, which is not part of the EU, but of Denmark, would have to hold a separate referendum to decide whether it wants to switch to the euro. The outcome of this possibility is uncertain, as current trends seem to favour independence from Denmark.

Estonia

Estonia also pegged its currency to the German Mark, and then the euro. Recently, the kroon entered the ERMII agreement.

Lithuania

The Lithuanian litas (LTL) was pegged to the US dollar until February 2, 2002. when it switched to a euro peg. The country recently entered the ERMII agreement.

Slovenia

Slovenia entered the ERMII agreement, and the tolar floats in a +-15% range against the euro.

Outside ERMII

Sweden

Sweden does not have any derogation by any protocol or treaty. Nevertheless, Sweden decided in 1997 not to join the euro from the beginning, and has not made any effort to fulfill the required criteria for a stable exchange rate.

The national referendum on the euro on September 14, 2003, showed that a majority of Swedes opposed the euro, with the following figures: Yes 42.0%, No 55.9%. Consequently, the decision has been postponed for at least nine years, as Prime Minister Göran Persson wants the results of the referendum to be respected until at least 2012.

United Kingdom

The British government under prime minister Tony Blair has committed itself to a triple-approval procedure before joining the euro, involving approval by the Cabinet, Parliament, and the British electorate in a referendum.

Unlike other European countries, where the euro is seen as an essential building block in a more politically integrated Europe, in the United Kingdom the possible benefits of eurozone membership are seen as principally economic, and an assessment of British membership based on five economic tests was published on June 9, 2003 by Chancellor of the Exchequer Gordon Brown.

Though maintaining the Government's positive view on the euro, the report came out against membership for the moment, because of the fact that four out of the five tests were not passed.

Chancellor Brown stated in June 2003 that the best exchange rate for the UK to join the single currency would be around 73 pence per euro (a value which the euro had never reached). This rate has not been formalised as an official condition of entry.

Opinion polls in the UK show an increasing majority of the British public to be against joining the euro. They perceive loss of political and economic sovereignty, and a referendum in the near future has been ruled out until at least after next general election.

If Britain were to join the euro, it is unclear what would happen in its overseas territories which use the British Pound Sterling.

Non-EU currencies pegged to the euro

• Bulgaria had its currency pegged to the German mark, and later, the euro.
• Cape Verde's currency was pegged to the Portuguese escudo, and now the euro.
• Bosnia and Herzegovina's currency, the Convertible Mark, was pegged to the German mark (and now the Euro).
• The CFA and CFP francs, used in former French colonies, were pegged to the French franc, and now the euro.

Inflation

• mid 1999: 1%
• mid 2000: 2%
• mid 2001: 2.8%
• mid 2002: 1.9%
• mid 2003: 1.9%
• May 2004: 2.5%

Fiscal policy

Members of the Eurozone have to respect the stability pact and have to keep fiscal deficit below 3% of the gross domestic product. If they do not do so, they may have to pay fines. The stability pact also forbids public debt higher than 60% of the GDP.

See also

• Economic and monetary union
• European System of Central Banks