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Euro area

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Euro area

Eurozone (euro area)
Currency euro
Union type Economic & Monetary
Established 1 January 1999
Political control Euro Group
Group president Jeroen Dijsselbloem
Issuing authority European Central Bank
ECB president Mario Draghi
Affiliated with European Union
Population (2012) 332,839,084[1]
GDP (2012) €9.5 trillion[2]
Interest rate 0.50%[3]
Inflation 1.6%[4]
Unemployment 11.7%[5]
Trade balance €81.8 bn surplus[6]

The eurozone (

Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which is governed by a president and a board of the heads of national central banks. 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 Euro Group, which makes political decisions regarding the eurozone and the euro. The Euro Group is composed of the finance ministers of eurozone states, however in emergencies, national leaders also form the Euro Group.

Since the late-2000s financial crisis, the eurozone has established and used provisions for granting emergency loans to member states in return for the enactment of 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 highly political and in a state of flux as of 2011 in terms of what further provisions will be agreed for eurozone reform.

Monaco, San Marino and Vatican City have concluded formal agreements with the EU to use the euro as their official currency and issue their own coins.[10] Andorra negotiated a similar agreement which has allowed them to issue euros from 1 July 2013.[11][12] Others, like Kosovo and Montenegro, have adopted the euro unilaterally.[13] However, these countries do not formally form part of the eurozone and do not have representation in the ECB or the Euro Group.[14]

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 2011, five new states acceded.

State Adopted Population
Nominal GDP
World Bank, 2009

(million USD)
Relative GDP
of total (nominal)
GDP per capita
World Bank, 2009

nominal (USD)
 Austria 1999-01-01 8,404,252 384,908 3.09% 45,799
 Belgium 1999-01-01 10,918,405 468,522 3.76% 42,911
(incl. UK military base)
2008-01-01 838,896
24,910 0.20% 30,966  Northern Cyprus[lower-alpha 1]
 Estonia 2011-01-01 1,340,194 19,120 0.15% 14,267
 Finland 1999-01-01 5,375,276 237,512 1.91% 44,186
 France 1999-01-01 65,075,373 2,649,390 21.26% 40,713  New Caledonia[lower-alpha 2]
 French Polynesia[lower-alpha 2]
 Wallis and Futuna[lower-alpha 2]
 Germany 1999-01-01 81,751,602 3,330,032 26.73% 40,734
 Greece 2001-01-01 11,325,897 329,924 2.65% 29,130
 Ireland 1999-01-01 4,480,858 227,193 1.82% 50,703
 Italy 1999-01-01 60,626,442 2,112,780 16.96% 34,849
 Luxembourg 1999-01-01 511,840 52,449 0.42% 102,471
 Malta 2008-01-01 417,617 7,449 0.06% 17,837
 Netherlands 1999-01-01 16,655,799 792,128 6.36% 47,559  Aruba[lower-alpha 4]
Curaçao Curaçao[lower-alpha 5]
Sint Maarten Sint Maarten[lower-alpha 5]
Netherlands Caribbean Netherl.[lower-alpha 6]
 Portugal 1999-01-01 10,636,979 227,676 1.83% 21,404
 Slovakia 2009-01-01 5,435,273 87,642 0.70% 16,125
 Slovenia 2007-01-01 2,050,189 48,477 0.39% 23,645
 Spain 1999-01-01 47,190,493 1,460,250 11.72% 30,944
European Union Eurozone 331,963,357 12,460,362 100% 37,535


Eleven countries (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden, and the United Kingdom) are EU members but do not use the euro, though Latvia is due to adopt the Euro from 1 January 2014. Before joining the eurozone, a state must spend two years in the European Exchange Rate Mechanism (ERM II). As of 2011, the National Central Banks (NCBs) of Latvia, Lithuania, and Denmark participate in ERM II.

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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. Sweden gained a de facto opt-out by using a legal loophole. It is required to join the eurozone as soon as it fulfils the convergence criteria, which include being part of ERM II for two years; joining ERM II is voluntary.[15][16] Sweden has so far decided not to join ERM II.

The 2008 financial crisis increased interest in Denmark and initially in Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro.[17] However, by 2010 the debt crisis in the eurozone caused interest from Poland and the Czech Republic to cool.[18] Latvia's adoption of the euro on 1 January 2014 was given final approval by the Economic and Financial Affairs Council on 9 July.[19][20] Lithuania plans to adopt the euro in 2015.[21]

Non-member usage

The euro is also used in countries outside the EU. Three states – Monaco, San Marino, and Vatican City —[13][10] 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. Andorra's monetary agreement with the EU to use the euro came into force in April 2012 and will permit it to issue its own euro coins as early as 1 July 2013, provided that Andorra implements relevant EU legislation.[13][22] They are expected to issue their first coins on 1 January 2014.[23]

Kosovo[lower-alpha 7] 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.[24][25][26] Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.[27]

Expulsion and secession

Although the eurozone is open to all EU member states to join once they meet the criteria, the treaty is silent on the matter of states leaving the eurozone, neither prohibiting nor permitting it. Likewise there is no provision for a state to be expelled from the euro.[28] Some, however, including the Dutch government, favour such a provision being created in the event that a heavily indebted state in the eurozone refuses to comply with an EU economic reform policy.[29] 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 the eurozone in the first place.[30]

The benefits of leaving the euro would vary depending on the exact situations. If the replacement currency were expected to devalue, the state would experience a large-scale exodus of money, whereas if the currency were expected to appreciate then more money would flow into the economy. Even so a rapidly appreciating currency would be detrimental to the country's exports.[31]

A problem is that leaving the euro can't be done so quickly, banknotes must for example be printed. So during preparations, a lot of money would leave the country, and people can be expected to withdraw euros in cash, causing a bank run. The theory on a normal devaluation of a currency says it must be done immediately after it is presented.

Administration and representation

Further information: European Central Bank, Euro Group and Euro summit

The monetary policy of all countries in the eurozone is managed by the European Central Bank (ECB) and the Eurosystem which comprises the ECB and the central banks of the EU states who have joined the euro zone. Countries outside the eurozone are not represented in these institutions. Whereas all EU member states are part of the European System of Central Banks (ESCB). Non EU member states have no say in all three institutions, even those with monetary agreements such as Monaco. The ECB is entitled to authorise the design and printing of euro banknotes and the volume of euro coins minted, and its president is currently Mario Draghi.

The eurozone is represented politically by its finance ministers, known collectively as the Euro Group, and is presided over by a president, currently Jeroen Dijsselbloem. The finance ministers of the 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. The Group is not an official Council formation but when the full EcoFin council votes on matters only affecting the eurozone, only Euro Group members are permitted to vote on it.[32][33][34]

Since the global financial crisis first began in 2008, the Euro Group has met irregularly not as finance ministers, but as heads of state and government (like the European Council). It is in this forum, the Euro summit, that many eurozone reforms have been agreed. In 2011, former French President Nicolas Sarkozy pushed for these summits to become regular and twice a year in order for it to be a 'true economic government'.

On 15 April 2008 in Brussels, Juncker suggested that the eurozone should be represented at the International Monetary Fund as a bloc, rather than each member state separately: "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."[35] However Finance Commissioner Joaquín Almunia stated that before there is common representation, a common political agenda should be agreed.[35]


Comparison table

Comparison of eurozone with other economies, 2006.[36]
Population GDPa % world Exports Imports
Eurozone 317 million €8.4 trillion 14.6% 21.7% GDP 20.9% GDP
EU (27) 494 million €11.9 trillion 21.0% 14.3% GDP 15.0% GDP
United States 300 million €11.2 trillion 19.7% 10.8% GDP 16.6% GDP
Japan 128 million €3.5 trillion 6.3% 16.8% GDP 15.3% GDP

^a GDP in PPP, exports/imports as goods and services excluding intra-EU trade.


HICP figures from the ECB, taken from May of each year:[37]

  • 1999: 1.0%
  • 2000: 1.7%
  • 2001: 3.1%
  • 2002: 2.0%
  • 2003: 1.8%
  • 2004: 2.5%
  • 2005: 2.0%
  • 2006: 2.5%
  • 2007: 1.9%
  • 2008: 3.7%
  • 2009: 0.0%
  • 2010: 1.7%
  • 2011: 2.7%
  • 2012: 2.4%
  • 2013: 1.4%

Interest rates

Interest rates for the eurozone, set by the ECB since 1999. Levels are in percentages per annum. Between to June 2000 and October 2008, the main refinancing operations were variable rate tenders, as opposed to fixed rate tenders. The figures indicated in the table from 2000 to 2008 refer to the minimum interest rate at which counterparties may place their bids.[3]

Date Deposit facility Main refinancing operations Marginal lending facility
1999-01-01 2.00 3.00 4.50
1999-01-04[lower-alpha 8] 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
2008-12-10 2.00 2.50 3.00
2009-01-21 1.00 2.00 3.00
2009-03-11 0.50 1.50 2.50
2009-04-08 0.25 1.25 2.25
2009-05-13 0.25 1.00 1.75
2011-04-13 0.50 1.25 2.00
2011-07-13 0.75 1.50 2.25
2011-11-09 0.50 1.25 2.00
2011-12-14 0.25 1.00 1.75
2012-07-11 0.00 0.75 1.50
2013-05-08 0.00 0.50 1.00

Public debt

The following table states the ratio of public debt to GDP in percent for eurozone countries. The euro convergence criterion is 60%.

Country CIA 2007[38] OECD 2009[39][40] IMF 2009[41] CIA 2009[42] EuroStat 2010[43] EuroStat 2011[44]
59.10 72.7 67.10[45] 66.40 72.3 72.2
84.60 100.4 93.70[46] 101.00 96.8 98.0
59.60 56.20[47] 56.20 60.8 71.6
3.40 7.10 6.6 6.0
Eurozone 86.0[48]
35.90 52.6 44.00[49] 40.30 48.4 48.6
63.90 87.1 78.10[50] 77.60 81.7 85.8
64.90 76.5 72.50[51] 77.20 83.2 81.2
89.50 120.2 113.40 142.8 165.3
24.90 72.7 64.00[52] 64.80 96.2 108.2
104.00 127.7 115.8[53] 115.80 119.0 120.1
6.40 18.0 16.40[54] 14.60 18.4 18.2
69.00 68.0 72.0
45.50 69.4 58.90[55] 60.90 62.7 65.2
63.60 86.3 75.80[56] 76.80 93.0 107.8
35.90 39.8 35.70[57] 35.70 41.0 43.3
23.60 44.1 31.30 38.0 47.6
36.20 62.4 53.20[58] 53.20 60.1 68.5
Convergence Criterion 60.00 60.0 60.00 60.00 60.0

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 17 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 Organisation for Economic Co-operation 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%, with no improvement in the second quarter, which is expected to show just a 0.4% gain.

The European Fiscal Compact is a proposal for a treaty about fiscal integration described in a decision adopted on 9 December 2011 by the European Council. The participants are the eurozone member states and all other EU members except for the United Kingdom. Treaty text is still to be drafted and participation approvals from national parliaments are still to be granted.[59]

Bailout provisions

The late-2000s financial crisis prompted a number of reforms in the eurozone. One was a u-turn on the eurozone's bailout policy that led to the creation of a specific fund to assist eurozone states in trouble. The European Financial Stability Facility (EFSF) and the European Financial Stability Mechanism (EFSM) were created in 2010 to provide, alongside the International Monetary Fund (IMF), a system and fund to bail out members. However the EFSF and EFSM were temporary, small and lacked a basis in the EU treaties. Therefore, it was agreed in 2011 to establish a European Stability Mechanism (ESM) which would be much larger, funded only by eurozone states (not the EU as a whole as the EFSF/EFSM were) and would have a permanent treaty basis. As a result of that its creation involved agreeing an amendment to TEFU Article 136 allowing for the ESM and a new ESM treaty to detail how the ESM would operate. If both are successfully ratified according to schedule, the ESM would be operational by the time the EFSF/EFSM expire in mid-2013.

Peer review

Strong EU oversight in the fields of taxation and budgetary policy and the enforcement mechanisms that go with it have sometimes been described as potential infringements on the sovereignty of eurozone member states[60] However, in June 2010, a broad agreement was finally reached on a controversial proposal for member states to peer review each other's budgets prior to their presentation to national parliaments. Although showing the entire budget to each other was opposed by Germany, Sweden and the UK, each government would present to their peers and the Commission their estimates for growth, inflation, revenue and expenditure levels six months before they go to national parliaments. If a country was to run a deficit, they would have to justify it to the rest of the EU while countries with a debt more than 60% of GDP would face greater scrutiny.[61]

The plans would apply to all EU members, not just the eurozone, and have to be approved by EU leaders along with proposals for states to face sanctions before they reach the 3% limit in the Stability and Growth Pact. Poland has criticised the idea of withholding regional funding for those who break the deficit limits, as that would only impact the poorer states.[61] In June 2010 France agreed to back Germany's plan for suspending the voting rights of members who breach the rules.[62] In March 2011 was initiated a new reform of the Stability and Growth Pact aiming at straightening the rules by adopting an automatic procedure for imposing of penalties in case of breaches of either the deficit or the debt rules.[63][64]

See also

European Union portal



External links

  • European Central Bank
  • Central Bank Rates, ECB Key Rate, chart and data
  • European Commission – Economic and Financial Affairs – Eurozone

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