Euro Zone

The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro (€) as their primary currency and sole legal tender, and have thus fully implemented EMU policies.

The 19 eurozone members are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The eight non-eurozone members of the EU are Bulgaria, Czech Republic, Croatia, Denmark, Hungary, Poland, Romania, and Sweden. They continue to use their own national currencies, albeit all but Denmark are obliged to join once they meet the euro convergence criteria. Croatia will become the 20th member on 1 January 2023. Among non-EU member states, 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. In addition, Kosovo and Montenegro have adopted the euro unilaterally. These countries, however, have no representation in any eurozone institution.

The Eurosystem is the monetary authority of the eurozone, the Eurogroup is an informal body of finance ministers that makes fiscal policy for the currency union and the European System of Central Banks is responsible for fiscal and monetary cooperation between eurozone and none-eurozone EU members. The European Central Bank (ECB) makes monetary policy for the eurozone, sets its base interest rate, and issues euro banknotes and coins.

Since the financial crisis of 2007–2008, 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. No eurozone member state has left, and there are no provisions to do so or to be expelled.

Territory

Eurozone

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 in those countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Greece qualified in 2000 and was admitted on 1 January 2001. The physical euro banknotes and euro coins were introduced in the preceding twelve members on 1 January 2002. All their pre-euro national coins and notes were taken out of circulation and rendered invalid after a short transition period. Between 2007 and 2015, seven new states acceded: Cyprus, Estonia, Latvia, Lithuania, Malta, Slovakia, and Slovenia.

Dependent territories of EU member states — outside EU

Three of the dependent territories of EU member states not part of the EU have adopted the euro:
* Territorial collectivity of Saint Barthélemy (French territory, with France ensuring eurozone laws are implemented)
* Overseas Collectivity of Saint-Pierre and Miquelon (French territory, with France ensuring eurozone laws are implemented)
* French Southern and Antarctic Lands (French territory, with France ensuring eurozone laws are implemented)

Non-member usage

With formal agreement

The euro is also used in countries outside the EU. Four states (Andorra, Monaco, San Marino, and Vatican City) 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.

Akrotiri and Dhekelia (located on the island of Cyprus) belong to the United Kingdom, but there are agreements between the UK and Cyprus and between UK and EU about their partial integration with Cyprus and partial adoption of Cypriot law, including the usage of euro in Akrotiri and Dhekelia.

Several currencies are pegged to the euro, some of them with a fluctuation band and others with an exact rate. The Bosnia and Herzegovina convertible mark was once pegged to the Deutsche mark at par, and continues to be pegged to the euro today at the Deutsch mark's old rate (1.95583 per euro). 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 and Montenegro officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights. 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. Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.

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 birth, on 13 March 1979, of the European Monetary System with its Exchange Rate Mechanism and the related new common currency ECU. On 1 January 1999, The euro replaced the ECU 1:1 at the exchange rate markets. 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 the ECU and pegging it against the D-mark.

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 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 a much closer fiscal, economic, and political convergence than originally anticipated. 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.

Future enlargement

Eight countries (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden) are EU members but do not use the euro.

Before joining the eurozone, a state must spend at least two years in the European Exchange Rate Mechanism (ERM II). , the Danish central bank, Bulgarian central bank, and Croatian central bank participate in ERM II.

Denmark obtained a special opt-out in the original Maastricht Treaty, and thus is legally exempt from joining the eurozone unless its government decides otherwise, either by parliamentary vote or referendum. The United Kingdom likewise had an opt-out prior to withdrawing from the EU in 2020.

The remaining 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. Bulgaria and Croatia joined ERM II on 10 July 2020.

Interest in joining the eurozone increased in Denmark, and initially in Poland, as a result of the financial crisis of 2007–2008. In Iceland, there was an increase in interest in joining the European Union, a pre-condition for adopting the euro. However, by 2010 the debt crisis in the eurozone caused interest from Poland, as well as the Czech Republic, Denmark and Sweden to cool.

On 12 July 2022, the Council adopted the final three legal acts that were required to enable Croatia to introduce the euro, which will enable Croatia to become the 20th member from 1 January 2023. Prices in Croatia are displayed in both the euro and the local currency, the kuna, from 5 September 2022 until 31 December 2023. Payment in euro is possible from 1 January 2023 (dual kuna/euro circulation in effect 1 January - 14 January 2023).

Expulsion and withdrawal

In the opinion of journalist Leigh Phillips and Locke Lord's Charles Proctor,"Brussels: No one can leave the euro"
by Leigh Phillips, '' EUobserver'', 8 September 2011The Eurozone crisis – the final stage?
" by Charles Proctor, Locke Lord, 15 May 2012 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". However, in 2009, a European Central Bank legal study argued that, while voluntary withdrawal is legally not possible, expulsion remains "conceivable".Withdrawal and Expulsion from the EU and EMU : Some reflections
" by Phoebus Athanassiou, Principal Legal Counsel with the Directorate-General for Legal Service, ECB, 2009 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."German advisory council calls for exit option in the eurozone"
by Daniel Tost, EurActiv, 29 July 2015

On the issue of leaving the eurozone, the European Commission has stated that " e 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 hat irrevocability" It added that it "does not intend to propose nyamendment" 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.Text
of response by Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro, on behalf of the European Commission, to question submitted by Claudio Morganti, Member of the European Parliament, 22 June 2012 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.

Likewise there is no provision for a state to be expelled from the euro. 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.

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. Furthermore, he has suggested that, under narrow circumstances, the European Union can expel member states from the eurozone.

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 opting for a large monetary union...including also...Italy, Spain, Portugal and Greece," calling these countries “highly indebted…countries”, despite that, at that time, the Spanish deficit (35,6%) was lower than the Eurozone average (64,9%), and that of countries such as Germany (63,7) or France (64,3). And Portugal had a deficit (68,4%) very similar to that of the last mentioned. Eichengreen, this time focused in the Greek case, added that "although a breakup was not impossible...it was unlikely," given the technical, political and above all economic obstacles. "On the first minute…that the reekgovernment was discussing the possibility f_a_Grexit.html"_;"title="Grexit.html"_;"title="f_a_Grexit">f_a_Grexit">Grexit.html"_;"title="f_a_Grexit">f_a_Grexitinvestors_would_sell_their_Greek_stocks_and_bonds"_and_there_"would_be_a_full-fledged_financial_panic..._a_full-out_bank_run...Greece_would_have_to_close_down_its_banking_system_until_order_was_restored._It_would_have_to_suspend_trading_on_its_financial_markets._It_would_probably_have_to_seal_its_borders_to_prevent_residents_from_ferrying_cash_out_of_the_country."Eichengreen,_Barry_(23_July_201
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__Administration_and_representation_

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