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Eurozone

From Wikipedia, in a visual modern way
Euro area
Desc-i.svg
Policy ofEuropean Union
TypeMonetary union
CurrencyEuro
Established1 January 1999
Members
20 states
Governance
Monetary authorityEurosystem
Political oversightEurogroup
Statistics
Area2,801,552 km2 (1,081,685 sq mi)[1]
Population342,886,984 (January 2022)[2]
Density122/km2 (316/sq mi)
GDP (nominal)€13.4 trillion
€38,470 (per capita) (2022)[3]
Interest rate3.50%[4]
Inflation8.5% (February 2023)[5]
Unemployment6.7% (January 2023)[6]
Trade balance€310 billion trade surplus[7]
This article is part of a series on
Politics of the European Union
Flag of Europe.svg
Member states (27)
Candidate countries
Applicant countries
Treaties
Opt-outs
Treaties of accession
1972, 1979, 1985, 1994, 2003, 2005, 2011
Treaties of succession
1984, 2020
Other treaties
Abandoned treaties and agreements
Executive institutions
European Council
European Commission
Legislative institutions
Council of the EU
Presidency
 Sweden
(January–June 2023)
Configurations
European Parliament
(Members)
National parliaments
Judicial institutions
Court of Justice of the EU
Auditory institutions
European Court of Auditors
Other auditory bodies
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European Central Bank
Other bodies
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European Stability Mechanism
European University Institute
Unified Patent Court
Agencies, decentralised independent bodies and joint undertakings
Other independent bodies
Advisory bodies
Inter-institutional bodies
Euratom
Euratom members
Associated states
Euratom since 1 January 2021
Economic and Monetary Union
Eurozone members


Eurogroup


Other currencies in use
Non Euro countries relationship to Euro
Eurozone since 2015
Schengen Area
Non-EU members
Non-Schengen area EU member states
Schengen Area from January 2023
European Economic Area
EEA members
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European Economic Area
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Elections in EU member states
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flag European Union portal
Not to be confused with the Economic and Monetary Union of the European Union, a term used to denote the entire path along with all related policies, leading to the adoption of the euro, of which the eurozone is the most advanced stage only.
Not to be confused with European Union, Eurodistrict, or Euroregion.

The euro area,[8] commonly called eurozone (EZ), is a currency union of 20 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 20 eurozone members are Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The seven non-eurozone members of the EU are Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden. They continue to use their own national currencies, although all but Denmark are obliged to join once they meet the euro convergence criteria.[9] 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.[10][11][12] In addition, Kosovo and Montenegro have adopted the euro unilaterally.[13] These countries, however, have no representation in any eurozone institution.[14]

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 non-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.[15]

Discover more about Eurozone related topics

European Union

European Union

The European Union (EU) is a supranational political and economic union of 27 member states that are located primarily in Europe. The union has a total area of 4,233,255.3 km2 (1,634,469.0 sq mi) and an estimated total population of nearly 447 million. The EU has often been described as a sui generis political entity combining the characteristics of both a federation and a confederation.

Euro

Euro

The euro is the official currency of 20 of the 27 member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 344 million citizens as of 2023. The euro is divided into 100 cents.

Euro sign

Euro sign

The euro sign is the currency sign used for the euro, the official currency of the eurozone and unilaterally adopted by Kosovo and Montenegro. The design was presented to the public by the European Commission on 12 December 1996. It consists of a stylized letter E, crossed by two lines instead of one. In English, the sign immediately precedes the value ; in most other European languages, it follows the value, usually but not always with an intervening space.

Currency

Currency

A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation state. Under this definition, the British Pound Sterling (£), euros (€), Japanese yen (¥), and U.S. dollars (US$) are examples of (government-issued) fiat currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance; i.e., legal tender laws may require a particular unit of account for payments to government agencies.

Economic and Monetary Union of the European Union

Economic and Monetary Union of the European Union

The economic and monetary union (EMU) of the European Union is a group of policies aimed at converging the economies of member states of the European Union at three stages.

Euro convergence criteria

Euro convergence criteria

The euro convergence criteria are the criteria European Union member states are required to meet to enter the third stage of the Economic and Monetary Union (EMU) and adopt the euro as their currency. The four main criteria, which actually comprise five criteria as the "fiscal criterion" consists of both a "debt criterion" and a "deficit criterion", are based on Article 140 of the Treaty on the Functioning of the European Union.

Andorra–European Union relations

Andorra–European Union relations

A customs union is the principal area of robust formal agreement between the Principality of Andorra and the European Union (EU). Andorra borders two EU member states: France and Spain.

Eurosystem

Eurosystem

The Eurosystem is the monetary authority of the eurozone, the collective of European Union member states that have adopted the euro as their sole official currency. The European Central Bank (ECB) has, under Article 16 of its Statute, the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorised by the ECB beforehand.

Eurogroup

Eurogroup

The Eurogroup is the recognised collective term for the informal meetings of the finance ministers of the eurozone—those member states of the European Union (EU) which have adopted the euro as their official currency. The group has 20 members. It exercises political control over the currency and related aspects of the EU's monetary union such as the Stability and Growth Pact. The current President of the Eurogroup is Paschal Donohoe, the Minister for Public Expenditure, National Development Plan Delivery and Reform of Ireland.

Fiscal policy

Fiscal policy

In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorised that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target inflation and to increase employment. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilise the economy over the course of the business cycle.

European System of Central Banks

European System of Central Banks

The European System of Central Banks (ESCB) is an institution that comprises the European Central Bank (ECB) and the national central banks (NCBs) of all 27 member states of the European Union (EU). Its objective is to ensure price stability throughout the EU, and improve monetary and financial cooperation between eurozone and non-eurozone member states of the EU.

European Central Bank

European Central Bank

The European Central Bank (ECB) is the prime component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important central banks.

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 preceding twelve members introduced physical euro banknotes and euro coins on 1 January 2002. After a short transition period, they took out of circulation and rendered invalid their pre-euro national coins and notes.

Between 2007 and 2023, eight new states have acceded: Croatia, Cyprus, Estonia, Latvia, Lithuania, Malta, Slovakia, and Slovenia.

state ISO code adopted on 1 January of population in 2021[16] nominal GNI in 2021 in millions of USD[17] nominal GNI as fraction of eurozone total nominal GNI per capita in 2021 in USD pre-euro currency pre-euro currency was also used in conversion rate of euro to pre-euro currency[18] territories where euro is not used
Austria AT 1999[19] 8,932,664 472,474 3.27% 52,893 schilling 13.7603
Belgium BE 1999[19] 11,554,767 585,375 4.05% 50,661 franc Luxembourg 40.3399
Croatia[a] HR 2023[20] 4,036,355 68,724 0.48% 17,026 kuna 7.53450
Cyprus CY 2008[21] 896,007 25,634 0.18% 28,609 pound 0.585274 Northern Cyprus[b]
Estonia EE 2011[22] 1,330,068 35,219 0.24% 26,479 kroon 15.6466
Finland FI 1999[19] 5,533,793 296,473 2.05% 53,575 markka 5.94573
France FR 1999[19] 67,656,682 2,991,553 20.69% 44,217 franc Andorra
Monaco 		6.55957 New Caledonia[c]
French Polynesia[c]
Wallis and Futuna[c]
Germany DE 1999[19] 83,155,031 4,298,325 29.72% 51,690 Mark 1.95583
Greece GR[d] 2001[23] 10,678,632 212,807 1.47% 19,928 drachma 340.750
Ireland IE 1999[19] 5,006,324 383,084 2.65% 76,520 pound 0.787564
Italy IT 1999[19] 59,236,213 2,127,119 14.71% 35,909 lira San Marino
Vatican City 		1936.27
Latvia LV 2014[24] 1,893,223 37,295 0.26% 19,699 lats 0.702804
Lithuania LT 2015[25] 2,795,680 60,884 0.42% 21,778 litas 3.45280
Luxembourg LU 1999[19] 634,730 56,449 0.39% 88,934 franc Belgium 40.3399
Malta MT 2008[26] 516,100 15,948 0.11% 30,901 lira 0.429300
Netherlands NL 1999[19] 17,475,415 967,837 6.69% 55,383 guilder 2.20371 Aruba[e]
Curaçao[f]
Sint Maarten[f]
Caribbean Netherlands[g]
Portugal PT 1999[19] 10,298,252 246,714 1.71% 23,957 escudo 200.482
Slovakia SK 2009[27] 5,459,781 112,424 0.78% 20,591 koruna 30.1260
Slovenia SI 2007[28] 2,108,977 59,608 0.41% 28,264 tolar 239.640
Spain ES 1999[19] 47,398,695 1,407,936 9.74% 29,704 peseta Andorra 166.386
eurozone EZ[h] — 346,597,389[i] 14,461,883 100.00% 41,725 — — — see above

Dependent territories of EU member states not part of the EU

Three of the dependent territories of EU member states not part of the EU have adopted the euro:

Non-member usage

Further information: International status and usage of the euro
Eurozone participation European Union member states   20 in the eurozone   1 in ERM II, without an opt-out (Bulgaria)   1 in ERM II, with an opt-out (Denmark)   5 not in ERM II, but obliged to join the eurozone on meeting the convergence criteria (Czech Republic, Hungary, Poland, Romania, and Sweden) Non–EU member states   4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City)   2 using the euro unilaterally (Kosovo[j] and Montenegro) vte
Eurozone participation
European Union member states
  20 in the eurozone
  1 in ERM II, without an opt-out (Bulgaria)
  1 in ERM II, with an opt-out (Denmark)
  5 not in ERM II, but obliged to join the eurozone on meeting the convergence criteria (Czech Republic, Hungary, Poland, Romania, and Sweden)
Non–EU member states
  4 using the euro with a monetary agreement (Andorra, Monaco, San Marino, and Vatican City)
  2 using the euro unilaterally (Kosovo[j] and Montenegro)

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.[29][30] 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.

Without formal agreement

Kosovo[k] and Montenegro officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights.[30] 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.[31][32][33] Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.[34]

Historical eurozone enlargements and exchange-rate regimes for EU members

Further information: History of the euro

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.

Sources: EC convergence reports 1996-2014, Italian lira, Spanish peseta, Portuguese escudo, Finnish markka, Greek drachma, Sterling

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 of the year noted: Slovenia in 2007, Cyprus in 2008, Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, and Lithuania in 2015. Croatia, which acceded to the EU in 2013, adopted the euro in 2023.

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 at that time (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.[35]

Future enlargement

Main article: Enlargement of the eurozone
European Political Community (2022)Schengen AreaCouncil of EuropeEuropean UnionEuropean Economic AreaEurozoneEuropean Union Customs UnionEuropean Free Trade AssociationNordic CouncilVisegrád GroupBaltic AssemblyBeneluxGUAM Organization for Democracy and Economic DevelopmentCentral European Free Trade AgreementOrganization of the Black Sea Economic CooperationUnion StateCommon Travel AreaInternational status and usage of the euro#Sovereign statesSwitzerlandLiechtensteinIcelandNorwaySwedenDenmarkFinlandPolandCzech RepublicHungarySlovakiaGreeceEstoniaLatviaLithuaniaBelgiumNetherlandsLuxembourgItalyFranceSpainAustriaGermanyPortugalSloveniaMaltaCroatiaCyprusRepublic of IrelandUnited KingdomTurkeyBulgariaRomaniaMonacoAndorraSan MarinoVatican CityGeorgia (country)UkraineAzerbaijanMoldovaNorth MacedoniaBosnia and HerzegovinaArmeniaSerbiaAlbaniaMontenegroUnited Nations Interim Administration Mission in KosovoRussiaBelarusSupranational European Bodies.svg
A clickable Euler diagram[file] showing the relationships between various multinational European organisations and agreements vte
A clickable Euler diagram[file] showing the relationships between various multinational European organisations and agreements

Seven countries (Bulgaria, 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). As of January 2023, the Danish central bank and the Bulgarian 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 six 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.[36][37] Bulgaria joined ERM II on 10 July 2020.[38]

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.[39] However, by 2010 the debt crisis in the eurozone caused interest from Poland, as well as the Czech Republic, Denmark and Sweden to cool.[40]

Expulsion and withdrawal

Main article: Withdrawal from the eurozone
See also: Greek withdrawal from the eurozone

In the opinion of journalist Leigh Phillips and Locke Lord's Charles Proctor,[41][42] 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".[42] However, in 2009, a European Central Bank legal study argued that, while voluntary withdrawal is legally not possible, expulsion remains "conceivable".[43] 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.[44]

On the issue of leaving the eurozone, the European Commission has stated that "[t]he 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 [that irrevocability]."[45] It added that it "does not intend to propose [any] amendment" 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.[45] 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.[46]

Likewise there is no provision for a state to be expelled from the euro.[47] 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.[48]

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.[49] Furthermore, he has suggested that, under narrow circumstances, the European Union can expel member states from the eurozone.[50]

Discover more about Territory related topics

Euro convergence criteria

Euro convergence criteria

The euro convergence criteria are the criteria European Union member states are required to meet to enter the third stage of the Economic and Monetary Union (EMU) and adopt the euro as their currency. The four main criteria, which actually comprise five criteria as the "fiscal criterion" consists of both a "debt criterion" and a "deficit criterion", are based on Article 140 of the Treaty on the Functioning of the European Union.

Euro banknotes

Euro banknotes

Banknotes of the euro, the common currency of the eurozone, have been in circulation since the first series was issued in 2002. They are issued by the national central banks of the Eurosystem or the European Central Bank. The euro was established in 1999, but "for the first three years it was an invisible currency, used for accounting purposes only, e.g. in electronic payments". In 2002, notes and coins began to circulate. The euro rapidly took over from the former national currencies and slowly expanded around the European Union.

Euro coins

Euro coins

There are eight euro coin denominations, ranging from one cent to two euros. The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different designs in circulation at once. Four European microstates that are not members of the European Union use the euro as their currency and also have the right to mint coins with their own designs on the obverse side.

Enlargement of the eurozone

Enlargement of the eurozone

The enlargement of the eurozone is an ongoing process within the European Union (EU). All member states of the European Union, except Denmark which negotiated an opt-out from the provisions, are obliged to adopt the euro as their sole currency once they meet the criteria, which include: complying with the debt and deficit criteria outlined by the Stability and Growth Pact, keeping inflation and long-term governmental interest rates below certain reference values, stabilising their currency's exchange rate versus the euro by participating in the European Exchange Rate Mechanism, and ensuring that their national laws comply with the ECB statute, ESCB statute and articles 130+131 of the Treaty on the Functioning of the European Union. The obligation for EU member states to adopt the euro was first outlined by article 109.1j of the Maastricht Treaty of 1992, which became binding on all new member states by the terms of their treaties of accession.

Austria

Austria

Austria, formally the Republic of Austria, is a landlocked country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous city and state. Austria is bordered by Germany to the northwest, the Czech Republic to the north, Slovakia to the northeast, Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the west. The country occupies an area of 83,871 km2 (32,383 sq mi) and has a population of 9 million.

Austrian schilling

Austrian schilling

The schilling was the currency of Austria from 1925 to 1938 and from 1945 to 1999, and the circulating currency until 2002. The euro was introduced at a fixed parity of €1 = 13.7603 schilling to replace it. The schilling was divided into 100 groschen.

Belgium

Belgium

Belgium, officially the Kingdom of Belgium, is a country in Northwestern Europe. The country is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to the southwest, and the North Sea to the northwest. It covers an area of 30,528 km2 (11,787 sq mi) and has a population of more than 11.5 million, making it the 22nd most densely populated country in the world and the 6th most densely populated country in Europe, with a density of 376/km2 (970/sq mi). Belgium is part of an area known as the Low Countries, historically a somewhat larger region than the Benelux group of states, as it also included parts of northern France. The capital and largest city is Brussels; other major cities are Antwerp, Ghent, Charleroi, Liège, Bruges, Namur, and Leuven.

Belgian franc

Belgian franc

The Belgian franc was the currency of the Kingdom of Belgium from 1832 until 2002 when the Euro was introduced. It was subdivided into 100 subunits, each known as a centiem in Dutch, centime in French or a Centime in German.

Croatia

Croatia

Croatia, officially the Republic of Croatia, is a country at the crossroads of Central and Southeast Europe. Its coast lies entirely on the Adriatic Sea. It borders Slovenia to the northwest, Hungary to the northeast, Serbia to the east, Bosnia and Herzegovina and Montenegro to the southeast, and shares a maritime border with Italy to the west and southwest. Its capital and largest city, Zagreb, forms one of the country's primary subdivisions, with twenty counties. The country spans 56,594 square kilometres, and has a population of nearly 3.9 million.

Croatian kuna

Croatian kuna

The kuna was the currency of Croatia from 30 May 1994 until 31 December 2022. It was replaced by the euro in 2023. The kuna was subdivided into 100 lipa. It was issued by the Croatian National Bank and the coins were minted by the Croatian Mint.

Cyprus

Cyprus

Cyprus, officially the Republic of Cyprus, is an island country located south of the Anatolian Peninsula in the eastern Mediterranean Sea. It is geographically in Western Asia, but its cultural ties and geopolitics are overwhelmingly Southeastern European. Cyprus is the third-largest and third-most populous island in the Mediterranean. It is located north of Egypt, east of Greece, south of Turkey, and west of Lebanon and Syria. Its capital and largest city is Nicosia. The northeast portion of the island is de facto governed by the self-declared Turkish Republic of Northern Cyprus.

Cypriot pound

Cypriot pound

The pound, or lira, was the currency of Cyprus, including the Sovereign Base Areas in Akrotiri and Dhekelia, from 1879 to 2007, when the Republic of Cyprus adopted the euro. However, the self-proclaimed Turkish Republic of Northern Cyprus uses the Turkish lira as its official currency.

Administration and representation

Further information: European Central Bank, Eurogroup, and Euro summit
The European Central Bank (seat in Frankfurt depicted) is the supranational monetary authority of the eurozone.
The European Central Bank (seat in Frankfurt depicted) is the supranational monetary authority of the eurozone.

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 eurozone. 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 Christine Lagarde.

The eurozone is represented politically by its finance ministers, known collectively as the Eurogroup, and is presided over by a president, currently Paschal Donohoe. 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.[51][52][53]

Since the global financial crisis of 2007–2008, 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 decided upon. 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'.

Reform

In April 2008 in Brussels, future European Commission President Jean-Claude Juncker suggested that the eurozone should be represented at the IMF 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".[54] In 2017 Juncker stated that he aims to have this agreed by the end of his mandate in 2019.[55] However, Finance Commissioner Joaquín Almunia stated that before there is common representation, a common political agenda should be agreed upon.[54]

Leading EU figures including the commission and national governments have proposed a variety of reforms to the eurozone's architecture; notably the creation of a Finance Minister, a larger eurozone budget, and reform of the current bailout mechanisms into either a "European Monetary Fund" or a eurozone Treasury. While many have similar themes, details vary greatly.[56][57][58][59]

Discover more about Administration and representation related topics

European Central Bank

European Central Bank

The European Central Bank (ECB) is the prime component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important central banks.

Eurogroup

Eurogroup

The Eurogroup is the recognised collective term for the informal meetings of the finance ministers of the eurozone—those member states of the European Union (EU) which have adopted the euro as their official currency. The group has 20 members. It exercises political control over the currency and related aspects of the EU's monetary union such as the Stability and Growth Pact. The current President of the Eurogroup is Paschal Donohoe, the Minister for Public Expenditure, National Development Plan Delivery and Reform of Ireland.

Euro summit

Euro summit

The Euro summit is the meeting of the heads of state or government of the member states of the eurozone. It is distinct from the EU summit held regularly by the European Council, the meeting of all EU leaders.

Central bank

Central bank

A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base. Most central banks also have supervisory and regulatory powers to ensure the stability of member institutions, to prevent bank runs, and to discourage reckless or fraudulent behavior by member banks.

Eurosystem

Eurosystem

The Eurosystem is the monetary authority of the eurozone, the collective of European Union member states that have adopted the euro as their sole official currency. The European Central Bank (ECB) has, under Article 16 of its Statute, the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorised by the ECB beforehand.

European System of Central Banks

European System of Central Banks

The European System of Central Banks (ESCB) is an institution that comprises the European Central Bank (ECB) and the national central banks (NCBs) of all 27 member states of the European Union (EU). Its objective is to ensure price stability throughout the EU, and improve monetary and financial cooperation between eurozone and non-eurozone member states of the EU.

Euro banknotes

Euro banknotes

Banknotes of the euro, the common currency of the eurozone, have been in circulation since the first series was issued in 2002. They are issued by the national central banks of the Eurosystem or the European Central Bank. The euro was established in 1999, but "for the first three years it was an invisible currency, used for accounting purposes only, e.g. in electronic payments". In 2002, notes and coins began to circulate. The euro rapidly took over from the former national currencies and slowly expanded around the European Union.

Euro coins

Euro coins

There are eight euro coin denominations, ranging from one cent to two euros. The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different designs in circulation at once. Four European microstates that are not members of the European Union use the euro as their currency and also have the right to mint coins with their own designs on the obverse side.

Christine Lagarde

Christine Lagarde

Christine Madeleine Odette Lagarde is a French politician and lawyer who has served as President of the European Central Bank since 2019. She previously served as the 11th Managing Director of the International Monetary Fund (IMF) from 2011 to 2019. Lagarde had also served in the Government of France, most prominently as Minister of the Economy, Finance and Industry from 2007 until 2011. She was the first woman to hold each of those posts.

Paschal Donohoe

Paschal Donohoe

Paschal Donohoe is an Irish Fine Gael politician who has served as Minister for Public Expenditure, National Development Plan Delivery and Reform since December 2022 and President of the Eurogroup since July 2020. He has been a Teachta Dála (TD) for the Dublin Central constituency since 2011. He served as Minister for Finance of Ireland from 2017 to 2022, Minister for Public Expenditure and Reform from 2016 to 2020, Minister for Transport, Tourism and Sport from 2014 to 2016 and Minister of State for European Affairs from 2013 to 2014.

Economic and Financial Affairs Council

Economic and Financial Affairs Council

The Economic and Financial Affairs Council (ECOFIN) is one of the oldest configurations of the Council of the European Union and is composed of the economics and finance ministers of the 27 European Union member states, as well as Budget Ministers when budgetary issues are discussed.

Council of the European Union

Council of the European Union

The Council of the European Union, often referred to in the treaties and other official documents simply as the Council, and informally known as the Council of Ministers, is the third of the seven Institutions of the European Union (EU) as listed in the Treaty on European Union. It is one of two legislative bodies and together with the European Parliament serves to amend and approve or veto the proposals of the European Commission, which holds the right of initiative.

Economy

GNI PPP per capita of Europe according to the World Bank, 2017.   Nations in the eurozone, at 44,000 USD   Nations with a GNI PPP per capita above 44,000 USD   Nations with a GNI PPP per capita below 44,000 USD
GNI PPP per capita of Europe according to the World Bank, 2017.
  Nations in the eurozone, at 44,000 USD
  Nations with a GNI PPP per capita above 44,000 USD
  Nations with a GNI PPP per capita below 44,000 USD

Comparison table

Comparison of the eurozone with US and China [60][3]
Population (2022) GDP (nominal) (2022) GDP (nominal) per capita (2022)
 China 1412 million CN¥123.2 trillion
(US$18.3 trillion) 		CN¥87,217
(US$12,970)
Logo European Central Bank.svg Eurozone 343 million €13.4 trillion
(US$14.0 trillion) 		€38,470
(US$40,740)
 United States 333 million US$25.0 trillion US$75,180
Comparison with economies of individual sovereign countries
Economy
Nominal GDP (billions in USD) – Peak year as of 2020
(01) United States (Peak in 2019)
21,439
(02) China (Peak in 2020)
14,860
(03) Logo European Central Bank.svg Eurozone (Peak in 2008)
14,188
(04) Japan (Peak in 2012)
6,203
(05) United Kingdom (Peak in 2007)
3,085
(06) India (Peak in 2019)
2,868
(07) Brazil (Peak in 2011)
2,614
(08) Russia (Peak in 2013)
2,289
(09) Canada (Peak in 2013)
1,847
(10) Korea (Peak in 2018)
1,720
(11) Australia (Peak in 2012)
1,569
(12) Mexico (Peak in 2014)
1,315
(13) Indonesia (Peak in 2019)
1,112
(14) Turkey (Peak in 2013)
950
(15) Saudi Arabia (Peak in 2018)
787
(16) Switzerland (Peak in 2019)
715
(17) Argentina (Peak in 2017)
643
(18) Taiwan (Peak in 2020)
635
(19) Poland (Peak in 2018)
585
(20) Sweden (Peak in 2013)
579

The 20 largest economies in the world including eurozone as a single entity, by nominal GDP (2020) at their peak level of GDP in billions US$. The values for EU members that are not also eurozone members are listed both separately and as part of the EU.[61]

Inflation

HICP figures from the ECB, overall index:[62]

  • 2000: 2.1%
  • 2001: 2.3%
  • 2002: 2.3%
  • 2003: 2.1%
  • 2004: 2.1%
  • 2005: 2.2%
  • 2006: 2.2%
  • 2007: 2.1%
  • 2008: 3.3%
  • 2009: 0.3%
  • 2010: 1.6%
  • 2011: 2.7%
  • 2012: 2.5%
  • 2013: 1.4%
  • 2014: 0.4%
  • 2015: 0.2%
  • 2016: 0.2%
  • 2017: 1.4%
  • 2018: 1.8%
  • 2019: 1.2%
  • 2020: 0.3%
  • 2021: 2.6%

Interest rates

Interest rates for the eurozone, set by the ECB since 1999.[63] Levels are in percentages per annum. Between 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.[4]

Eurozone interest rates

Date Deposit
facility 		Main
refinancing
operations 		Marginal
lending
facility
1999-01-01 2.00 3.00 4.50
1999-01-04[l] 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
2013-11-13 0.00 0.25 0.75
2014-06-11 −0.10 0.15 0.40
2014-09-10 −0.20 0.05 0.30
2015-12-09 −0.30 0.05 0.30
2016-03-16 −0.40 0.00 0.25

Public debt

The following table states the ratio of public debt to GDP in percent for eurozone countries given by EuroStat.[64] The euro convergence criterion is 60%.

Country 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022[65]
Eurozone 64.9 69.6 80.2 85.7 87.6 91.0 93.0 93.1 91.2 90.4 87.9 85.8 83.8 97.2 95.6 94.2
Austria 64.7 68.7 79.7 82.7 82.4 81.9 81.3 84.0 84.9 82.8 78.5 74.1 70.6 83.3 82.8 82.7
Belgium 87.0 93.2 99.6 100.3 103.5 104.8 105.5 107.0 105.2 105.0 102.0 99.8 97.7 112.8 108.2 108.3
Cyprus 53.5 45.5 53.9 56.3 65.8 80.3 104.0 109.1 108.9 107.1 97.5 100.6 91.1 115.0 103.6 95.2
Croatia 37.2 39.1 48.4 57.3 63.7 69.4 80.3 83.9 83.3 79.8 76.7 73.3 71.1 87.3 79.8 74.3
Estonia 3.7 4.5 7.0 6.6 5.9 9.8 10.2 10.6 9.7 9.4 9.0 8.4 8.6 19.0 18.1 16.7
Finland 34.0 32.6 41.7 47.1 48.5 53.6 56.2 59.8 63.1 63.1 61.4 59.0 59.5 69.0 65.8 72.1
France 64.3 68.8 79.0 81.7 85.2 90.6 93.4 94.9 95.8 96.5 97.0 98.4 97.5 114.6 112.9 113.1
Germany 63.7 65.5 72.4 81.0 78.3 81.1 78.7 75.6 71.2 68.1 64.1 61.9 58.9 68.7 69.3 67.2
Greece 103.1 109.4 126.7 146.2 172.1 161.9 178.4 180.2 176.9 180.8 178.6 181.2 180.7 206.3 193.3 182.1
Ireland 23.9 42.4 61.8 86.8 109.1 119.9 119.9 104.2 93.8 72.8 68.0 63.6 57.2 58.4 56.0 51.4
Italy 99.8 106.2 112.5 115.4 116.5 126.5 132.5 135.4 132.7 132 131.8 134.8 134.3 155.3 150.8 150.2
Latvia 8.0 18.6 36.6 47.5 42.8 42.2 40.0 41.6 36.4 40.6 40.1 36.4 36.7 43.3 44.8 41.6
Lithuania 15.9 14.6 29.0 36.2 37.2 39.7 38.7 40.5 42.7 40.1 39.7 34.1 35.9 46.6 44.3 39.6
Luxembourg 7.7 15.4 16.0 20.1 19.1 22.0 23.7 22.7 21.4 20.8 23.0 21.0 22.3 24.8 24.4 25.4
Malta 62.3 61.8 67.8 67.6 69.9 65.9 65.8 61.6 63.9 57.6 50.8 45.8 40.7 53.4 57.0 55.1
Netherlands 42.7 54.7 56.5 59.0 61.7 66.3 67.7 67.9 65.1 61.8 56.7 52.4 48.5 54.3 52.1 50.9
Portugal 68.4 75.6 83.6 96.2 111.4 129.0 131.4 132.9 129.0 130.1 125.7 122.2 116.6 135.2 127.4 123.4
Slovakia 30.1 28.6 41.0 43.3 43.3 51.8 54.7 53.6 52.9 51.8 50.9 49.4 48.1 59.7 63.1 60.3
Slovenia 22.8 21.8 36.0 40.8 46.6 53.6 70.0 80.3 83.2 78.5 73.6 70.4 65.6 79.8 74.7 73.5
Spain 35.6 39.7 52.7 60.1 69.5 86.3 95.8 100.7 99.2 99.0 98.3 97.6 95.5 120.0 118.4 116.1

Fiscal policies

See also: European Fiscal Compact
Comparison of government surplus/deficit (2001–2012) of eurozone, United States and United Kingdom
Comparison of government surplus/deficit (2001–2012) of eurozone, United States and United Kingdom

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 20 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 Fiscal Compact[66][67] (formally, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union),[68] is an intergovernmental treaty introduced as a new stricter version of the Stability and Growth Pact, signed on 2 March 2012 by all member states of the European Union (EU), except the Czech Republic, the United Kingdom,[69] and Croatia (subsequently acceding the EU in July 2013). The treaty entered into force on 1 January 2013 for the 16 states which completed ratification prior of this date.[70] As of 1 April 2014, it had been ratified and entered into force for all 25 signatories.

Olivier Blanchard suggests that a fiscal union in the eurozone can mitigate devastating effects of the single currency on the eurozone peripheral countries. But he adds that the currency bloc will not work perfectly even if a fiscal transfer system is built, because, he argues, the fundamental issue about competitiveness adjustment is not tackled. The problem is, since the eurozone peripheral countries do not have their own currencies, they are forced to adjust their economies by decreasing their wages instead of devaluation.[71]

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China

China

China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and borders fourteen countries by land, the most of any country in the world, tied with Russia. With an area of approximately 9.6 million square kilometres (3,700,000 sq mi), it is the world's third largest country by total land area. The country consists of 22 provinces, five autonomous regions, four municipalities, and two special administrative regions. The national capital is Beijing, and the most populous city and largest financial center is Shanghai.

United States

United States

The United States of America, commonly known as the United States or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territories, nine Minor Outlying Islands, and 326 Indian reservations. The United States is also in free association with three Pacific Island sovereign states: the Federated States of Micronesia, the Marshall Islands, and the Republic of Palau. It is the world's third-largest country by both land and total area. It shares land borders with Canada to its north and with Mexico to its south and has maritime borders with the Bahamas, Cuba, Russia, and other nations. With a population of over 333 million, it is the most populous country in the Americas and the third most populous in the world. The national capital of the United States is Washington, D.C. and its most populous city and principal financial center is New York City.

Euro convergence criteria

Euro convergence criteria

The euro convergence criteria are the criteria European Union member states are required to meet to enter the third stage of the Economic and Monetary Union (EMU) and adopt the euro as their currency. The four main criteria, which actually comprise five criteria as the "fiscal criterion" consists of both a "debt criterion" and a "deficit criterion", are based on Article 140 of the Treaty on the Functioning of the European Union.

European Fiscal Compact

European Fiscal Compact

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union; also referred to as TSCG, or more plainly the Fiscal Stability Treaty is an intergovernmental treaty introduced as a new stricter version of the Stability and Growth Pact, signed on 2 March 2012 by all member states of the European Union (EU), except the Czech Republic and the United Kingdom. The treaty entered into force on 1 January 2013 for the 16 states which completed ratification prior to this date. As of 3 April 2019, it had been ratified and entered into force for all 25 signatories plus Croatia, which acceded to the EU in July 2013, and the Czech Republic.

Government budget

Government budget

A government budget is a projection of the government's revenues and spendings for a particular period of time often referred to as a financial or fiscal year, which may or may not correspond with the calendar year. Government revenues mostly include taxes while expenditures consist of government spendings. A government budget is prepared by the government or other political entity. In most parliamentary systems, the budget is presented to the legislature and often requires approval of the legislature. Through this budget, the government implements economic policy and realizes its program priorities. Once the budget is approved, the use of funds from individual chapters is in the hands of government ministries and other institutions. Revenues of the state budget consist mainly of taxes, customs duties, fees and other revenues. State budget expenditures cover the activities of the state, which are either given by law or the constitution. The budget in itself does not appropriate funds for government programs, hence need for additional legislative measures. The word budget comes from the Old French bougette.

Stability and Growth Pact

Stability and Growth Pact

The Stability and Growth Pact (SGP) is an agreement, among all of the 27 member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union (EMU). Based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of the European Union, and the issuing of a yearly recommendation for policy actions to ensure a full compliance with the SGP also in the medium-term. If a Member State breaches the SGP's outlined maximum limit for government deficit and debt, the surveillance and request for corrective action will intensify through the declaration of an Excessive Deficit Procedure (EDP); and if these corrective actions continue to remain absent after multiple warnings, the Member State can ultimately be issued economic sanctions. The pact was outlined by a resolution and two council regulations in July 1997. The first regulation "on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies", known as the "preventive arm", entered into force 1 July 1998. The second regulation "on speeding up and clarifying the implementation of the excessive deficit procedure", known as the "dissuasive arm", entered into force 1 January 1999.

Olivier Blanchard

Olivier Blanchard

Olivier Jean Blanchard is a French economist and professor who is a senior fellow at the Peterson Institute for International Economics. He was the chief economist at the International Monetary Fund from September 1, 2008, to September 8, 2015. Blanchard was appointed to the position under the tenure of Dominique Strauss-Kahn; he was succeeded by Maurice Obstfeld. He is also a Robert M. Solow Professor of Economics emeritus at the Massachusetts Institute of Technology (MIT). According to IDEAS/RePEc, he is one of the most cited economists in the world.

Bailout provisions

See also: History of the euro § Recession era

The financial crisis of 2007–2008 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.

In February 2016, the UK secured further confirmation that countries that do not use the Euro would not be required to contribute to bailouts for eurozone countries.[72]

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Bailout

Bailout

A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.

European Financial Stability Facility

European Financial Stability Facility

The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the eurozone to address the European sovereign-debt crisis. It was agreed by the Council of the European Union on 9 May 2010, with the objective of preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty. The Facility's headquarters are in Luxembourg City, as are those of the European Stability Mechanism. Treasury management services and administrative support are provided to the Facility by the European Investment Bank through a service level contract. Since the establishment of the European Stability Mechanism, the activities of the EFSF are carried out by the ESM.

International Monetary Fund

International Monetary Fund

The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world." Formed in 1944, started on 27 December 1945, at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international monetary system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had XDR 477 billion. The IMF is regarded as the global lender of last resort.

European Stability Mechanism

European Stability Mechanism

The European Stability Mechanism (ESM) is an intergovernmental organization located in Luxembourg City, which operates under public international law for all eurozone member states having ratified a special ESM intergovernmental treaty. It was established on 27 September 2012 as a permanent firewall for the eurozone, to safeguard and provide instant access to financial assistance programmes for member states of the eurozone in financial difficulty, with a maximum lending capacity of €500 billion. It has replaced two earlier temporary EU funding programmes: the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM).

Treaties of the European Union

Treaties of the European Union

The Treaties of the European Union are a set of international treaties between the European Union (EU) member states which sets out the EU's constitutional basis. They establish the various EU institutions together with their remit, procedures and objectives. The EU can only act within the competences granted to it through these treaties and amendment to the treaties requires the agreement and ratification of every single signatory.

Euro

Euro

The euro is the official currency of 20 of the 27 member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 344 million citizens as of 2023. The euro is divided into 100 cents.

Peer review

See also: Euro Plus Pact

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.[73]

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.[73] In June 2010 France agreed to back Germany's plan for suspending the voting rights of members who breach the rules.[74] 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.[75][76]

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Euro Plus Pact

Euro Plus Pact

The Euro-Plus Pact was adopted in March 2011 under EU's Open Method of Coordination, as an intergovernmental agreement between all member states of the European Union, in which concrete commitments were made to be working continuously within a new commonly agreed political general framework for the implementation of structural reforms intended to improve competitiveness, employment, financial stability and the fiscal strength of each country. The plan was advocated by the French and German governments as one of many needed political responses to strengthen the EMU in areas which the European sovereign-debt crisis had revealed as being too poorly constructed.

National parliaments of the European Union

National parliaments of the European Union

The national parliaments of the European Union are those legislatures responsible for each member state of the European Union (EU). They have a certain degree of institutionalised influence which was expanded under the Treaty of Lisbon to include greater ability to scrutinise proposed European Union law.

Stability and Growth Pact

Stability and Growth Pact

The Stability and Growth Pact (SGP) is an agreement, among all of the 27 member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union (EMU). Based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of the European Union, and the issuing of a yearly recommendation for policy actions to ensure a full compliance with the SGP also in the medium-term. If a Member State breaches the SGP's outlined maximum limit for government deficit and debt, the surveillance and request for corrective action will intensify through the declaration of an Excessive Deficit Procedure (EDP); and if these corrective actions continue to remain absent after multiple warnings, the Member State can ultimately be issued economic sanctions. The pact was outlined by a resolution and two council regulations in July 1997. The first regulation "on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies", known as the "preventive arm", entered into force 1 July 1998. The second regulation "on speeding up and clarifying the implementation of the excessive deficit procedure", known as the "dissuasive arm", entered into force 1 January 1999.

Criticism

See also: Phillips curve and Nominal rigidity

In 1997, Arnulf Baring expressed concern that the European Monetary Union would make Germans the most hated people in Europe. Baring suspected the possibility that the people in Mediterranean countries would regard Germans and the currency bloc as economic policemen.[77]

In 2001, James Tobin thought that the euro project would not succeed without making drastic changes to European institutions, pointing out the difference between the US and the eurozone.[78] Concerning monetary policies, the system of Federal Reserve banks in the US aims at both growth and reducing unemployment, while the ECB tends to give its first priority to price stability under the Bundesbank's supervision. As the price level of the currency bloc is kept low, the unemployment level of the region has become higher than that of the US since 1982.[78] Concerning fiscal policies, 12% of the US federal budget is used for transfers to states and local governments. The US government does not impose restrictions on state budget policies, whereas the Treaty of Maastricht requires each eurozone member country to keep its budget deficit below 3% of its GDP.[78]

In 2008, a study by Alberto Alesina and Vincenzo Galasso found that the adoption of euro promoted market deregulation and market liberalization.[79][80] Furthermore, the euro was also linked to wage moderation, as wage growth slowed down in countries that adopted the new currency.[79] Oliver Hart, who received the Nobel Memorial Prize in Economic Sciences in 2016, criticized the euro, calling it a "mistake" and emphasising his opposition to monetary union since its inception.[81] He also expressed opposition to European integration, arguing that the European Union should instead focus on decentralisation as it has “gone too far in centralising power”.[81] In 2018, a study based on DiD methodology found that the adoption of euro produced no systematic growth effects, as no growth-enhancing effects were found when compared to European economies outside the eurozone.[82]

The eurozone has also been criticized for deepening inequality in Europe, particularly between the richest and poorest countries.[83] According to a study by Bertelsmann Stiftung, countries such as Austria and the Netherlands benefited significantly from the common currency, while southern and eastern European members of the eurozone gained very little,[84] and some countries are considered to have suffered adverse effects from adopting the euro.[85] In an article for the Politico, Joseph Stiglitz argues: "The result for the eurozone has been slower growth, and especially for the weaker countries within it. The euro was supposed to usher in greater prosperity, which in turn would lead to renewed commitment to European integration. It has done just the opposite — increasing divisions within the EU, especially between creditor and debtor countries."[85] Matthias Matthijs believes that the euro resulted in a "winner-take-all" economy, as national income differences between eurozone members have widened further.[86] He argues that countries such as Austria and Germany have gained from the eurozone at the expense of southern countries like Italy and Spain.[86]

By adopting the euro and abandoning their national currencies, eurozone countries gave up their ability to conduct independent monetary policy; as such, monetary policies used to combat recession, such as monetary stimulus or currency devaluation, are no longer available.[86] During the European debt crisis, several eurozone countries (Greece, Italy, Portugal, Ireland, Spain, and Cyprus) were unable to repay their debt without third-party intervention by the European Central Bank and the International Monetary Fund.[87] In order to grant the bailout, the ECB and the IMF forced the affected countries to adopt strict austerity measures.[86] The European bailouts were largely about shifting exposure from banks onto European taxpayers,[88][89][90] and exacerbated issues such as high unemployment and poverty.[91][92]

In 2019, a study from the Centre for European Policy concluded that while some countries had gained from adopting the euro, several countries were poorer than they would have been had they not adopted it, with France and Italy being particularly affected.[93][94] The publication prompted a large number of reactions, pushing its authors to put out a statement clarifying some points.[95] In 2020, a study from the University of Bonn reached a different conclusion: the adoption of the euro made “some mild losers (France, Germany, Italy, and Portugal) and a clear winner (Ireland)”.[96] Both studies used the synthetic control method to estimate what might have happened if the euro hadn't been adopted.

Discover more about Criticism related topics

Arnulf Baring

Arnulf Baring

Arnulf Martin Baring was a German lawyer, journalist, political scientist, contemporary historian and author. He was a member of the German-British Baring family of bankers.

James Tobin

James Tobin

James Tobin was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored dependent variables, the well-known tobit model.

European Central Bank

European Central Bank

The European Central Bank (ECB) is the prime component of the Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important central banks.

Deutsche Bundesbank

Deutsche Bundesbank

The Deutsche Bundesbank, literally "German Federal Bank", is the central bank of the Federal Republic of Germany and as such part of the European System of Central Banks (ESCB). Due to its strength and former size, the Bundesbank is the most influential member of the ESCB. Both the Bundesbank and the European Central Bank (ECB) are located in Frankfurt, Germany. It is sometimes referred to as "Buba" for Bundesbank, while its usual abbreviation is BBk in Germany and internationally DBB.

Alberto Alesina

Alberto Alesina

Alberto Francesco Alesina was an Italian political economist. Described as one of the leading political economists of his generation, he published many influential works in both the economics and political science research literature.

Euro

Euro

The euro is the official currency of 20 of the 27 member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 344 million citizens as of 2023. The euro is divided into 100 cents.

Deregulation

Deregulation

Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy. Economic regulations were promoted during the Gilded Age, in which progressive reforms were claimed as necessary to limit externalities like corporate abuse, unsafe child labor, monopolization, pollution, and to mitigate boom and bust cycles. Around the late 1970s, such reforms were deemed burdensome on economic growth and many politicians espousing neoliberalism started promoting deregulation.

Free trade

Free trade

Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist and left-wing political parties generally support protectionism, the opposite of free trade.

Nobel Memorial Prize in Economic Sciences

Nobel Memorial Prize in Economic Sciences

The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is an economics award administered by the Nobel Foundation.

European integration

European integration

European integration is the process of industrial, economic, political, legal, social, and cultural integration of states wholly or partially in Europe or nearby. European integration has primarily come about through the European Union and its policies.

Difference in differences

Difference in differences

Difference in differences is a statistical technique used in econometrics and quantitative research in the social sciences that attempts to mimic an experimental research design using observational study data, by studying the differential effect of a treatment on a 'treatment group' versus a 'control group' in a natural experiment. It calculates the effect of a treatment on an outcome by comparing the average change over time in the outcome variable for the treatment group to the average change over time for the control group. Although it is intended to mitigate the effects of extraneous factors and selection bias, depending on how the treatment group is chosen, this method may still be subject to certain biases.

Bertelsmann Stiftung

Bertelsmann Stiftung

The Bertelsmann Stiftung is an independent foundation under private law, based in Gütersloh, Germany. It was founded in 1977 by Reinhard Mohn as the result of social, corporate and fiscal considerations. As the Bertelsmann Stiftung itself has put it, the foundation promotes "reform processes" and "the principles of entrepreneurial activity" to build a "future-oriented society."

Source: "Eurozone", Wikipedia, Wikimedia Foundation, (2023, March 16th), https://en.wikipedia.org/wiki/Eurozone.

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Further Reading

European Exchange Rate Mechanism

European System of Central Banks

Lithuania and the euro

Czech Republic and the euro

Hungary and the euro

Latvia and the euro

Bulgaria and the euro

Romania and the euro

Sweden and the euro

History of the euro

United Kingdom and the euro

Denmark and the euro

Montenegro and the euro

Enlargement of the eurozone

International status and usage of the euro

Economic and Monetary Union of the European Union

List of acronyms associated with the eurozone crisis

Croatia and the euro
See also
Notes
  1. ^ Prices in Croatia are displayed in both the euro and the local currency, the kuna, between 5 September 2022 and 31 December 2023.
  2. ^ The self-declared Turkish Republic of Northern Cyprus is not recognised by the EU and uses the Turkish lira. However, the euro does circulate widely.
  3. ^ a b c French Pacific territories use the CFP franc, which is pegged to the euro at the rate of 1 franc to 0.00838 euro.
  4. ^ The European Union internally uses the code EL for Greece, a deviation from the ISO 3166-1 standard.
  5. ^ Aruba is part of the Kingdom of the Netherlands, but not of the EU. It uses the Aruban florin, which is pegged to the US dollar at the rate of 1 dollar to 1.79 florins.
  6. ^ a b Currently uses the Netherlands Antillean guilder and is planning to introduce the Caribbean guilder in 2025, after the change was delayed several times. "CBCS wants to have the Caribbean guilder introduced by 2025". Curaçao Chronicle. 16 March 2022. Retrieved 2 August 2022. "Frequent Asked Questions". Centrale Bank Curaçao & Sint Maarten. Retrieved 2 August 2022. Both are pegged to the US dollar at the rate of 1 dollar to 1.79 guilders.
  7. ^ Uses the US dollar.
  8. ^ EZ is not assigned, but is reserved for this purpose, in ISO-3166-1.
  9. ^ Includes the population of Croatia, even though it was not a eurozone member in 2021.
  10. ^ The political status of Kosovo is disputed. Having unilaterally declared independence from Serbia in 2008, Kosovo is formally recognised as an independent state by 101 out of 193 (52.3%) UN member states (with another 13 recognising it at some point but then withdrawing their recognition), while Serbia continues to claim it as part of its own territory.
  11. ^ The political status of Kosovo is disputed. Having unilaterally declared independence from Serbia in 2008, Kosovo is formally recognised as an independent state by 101 out of 193 (52.3%) UN member states (with another 13 recognising it at some point but then withdrawing their recognition), while Serbia continues to claim it as part of its own territory.
  12. ^ The ECB announced on 22 December 1998 that, between 4 and 21 January 1999, there would be a narrow corridor of 50 basis points interest rates for the marginal lending facility and the deposit facility in order to help the transition to the ECB's interest regime.
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