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The eurozone (), officially the euro area, is an economic and monetary union (EMU) of 16 European Union (EU) member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Eight (not including Sweden, which has a ''de facto'' opt out) other states are obliged to join the zone once they fulfil the strict entry criteria.
Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union.
The term "eurozone" or "euro area" can also be taken informally to include third countries that have adopted the euro, for example Montenegro (see details on these countries below). Three European microstates–Monaco, San Marino and the Vatican City–have concluded agreements with the European Union permitting them to use the euro as their official currency and mint coins, but they are neither formally part of the eurozone nor represented on the board of the European Central Bank.
In 1998 eleven EU member-states had met the convergence criteria, and the eurozone came into existence with the official launch of the euro on 1 January 1999. Greece qualified in 2000 and was admitted on 1 January 2001. Physical coins and banknotes were introduced on 1 January 2002. Slovenia qualified in 2006 and was admitted on 1 January 2007. Cyprus and Malta qualified in 2007 and were admitted on 1 January 2008. Slovakia qualified in 2008 and joined on 1 January 2009. As of 2009 there are 16 member states with 329 million people in the eurozone.
Eleven countries, Denmark, Sweden, the United Kingdom, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania are in the European Union but do not use the euro. Before a state can join the eurozone, it must spend two years in the European Exchange Rate Mechanism (ERM II). As of the 1 January 2008, five National Central Banks (NCBs) participated in the mechanism (see table below). The remaining currencies are expected to follow as soon as they meet the criteria. Estonia, Latvia, Lithuania and Denmark are all members of ERM II and hence are in a position to join quickly once approved, however few countries now have a formal target date and only Estonia is expected to join before 2013 (Estonia is expected to gain approval in 2010 for accession in 2011).
Denmark and the United Kingdom obtained special opt-outs in the original Maastricht Treaty of the European Union. Both countries are legally exempt from joining the eurozone unless their governments decide otherwise, either by parliamentary vote or referendum. The current Danish government has announced plans to hold a referendum on the issue following the adoption of the Treaty of Lisbon.. Sweden gained a ''de facto'' opt-out by using a legal loophole. It is required to join the Euro as soon as it fulfills the convergence criteria, which includes being part of ERM II for two years. However joining ERM II is voluntary and as Sweden has so far decided to stay outside of the Euro it has not joined ERM II.
The 2008 financial crisis has increased interest in Denmark and Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro. On the other hand, since Latvia is asking for help from the International Monetary Fund (IMF), it is possible that the IMF will force Latvia to give up its currency peg as a precondition; officially taking Latvia out of the ERM II and possibly moving the euro adoption date even further from 2013 than currently planned.
Estonia is currently the only state with a chance of adopting in the short term. It is expected to be ready for 2011 and is meeting the criteria, although the final decision is yet to be made.
The euro is used beyond the EU states which have joined the economic and monetary union. Three states, Monaco, San Marino and Vatican City,
[[http://ec.europa.eu/economy_finance/the_euro/euro_in_world9369_en.htm The euro outside the euro area], Europa (web portal)] have signed formal agreements with the EU to use the euro, and to mint their own coins. However, although they have formally adopted the euro and mint coins, they are not considered part of the eurozone by the ECB and do not have a seat in the ECB or Euro Group.
Several other countries have officially adopted the euro as their sole currency, such as Andorra, Kosovo and Montenegro, without even an agreement. These states are also not considered part of the official eurozone by the ECB. However, in some usage, the term ''eurozone'' is applied to all such states and 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.
Administration and representation
The monetary policy of all countries in the eurozone is managed by the European Central Bank (ECB) and the European System of Central Banks (ESCB) which comprises the ECB and the central banks of the EU states who have joined the zone. Countries outside the European Union, even those with monetary agreements such as Monaco, are not represented in these institutions. The ECB is entitled to authorise the design and printing of euro banknotes and the minting of euro coins.
The eurozone is represented politically by its finance ministers, known collectively as the Euro Group which is presided over by a president, currently Jean-Claude Juncker. 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.
[[http://www.fedtrust.co.uk/admin/uploads/FedT_Economic_Government.pdf An economic government for the eurozone?] PDF, Federal Union]
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."
[Vucheva, Elitsa (2008-04-15)[http://euobserver.com/9/25984 eurozone countries should speak with one voice, Juncker says], EU Observer.] However Finance Commissioner Joaquín Almunia stated that before there is common representation, a common political agenda should be agreed.
HICP figures from the ECB;
Interest rates for the eurozone, set by the ECB since 1999. Levels are in percentages per annum. Prior to June 2000, the ''main refinancing operations'' were fixed rate tenders. This was replaced by variable rate tenders, the figures indicated in the table after that refer to the minimum interest rate at which counterparties may place their bids.
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 16 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 Cooperation 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.
As a result of the global financial crisis that began in 2007/2008, the eurozone entered its first official recession in the third quarter of 2008, official figures confirmed in January 2009. On 11 October 2008 the Euro Group heads of state and government (rather than finance ministers) held an extraordinary summit in Paris to define a joint action plan for the eurozone and the European Central Bank to stabilise the European economy.
The leaders hammered out a plan to confront the financial crisis which will involve hundreds of billions of euros of new initiatives to head off a feared "meltdown". They agreed a bank rescue plan: governments would buy into banks to boost their finances and guarantee interbank lending. Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems. In the Great Depression, so-called "beggar-thy-neighbour" measures taken unilaterally by countries are considered to have deepened the economic loss.
Despite initial fears by speculators in early 2009 that the stress of such a large recession could lead to the break up of the eurozone, the euro's position actually strengthened as the year progressed. Far from the poorer performing economies moving further away and becoming a default risk, bond yield spreads between Germany and the weakest economies decreased easing the strain on these economies. The ECB has been attributed much of the credit for the turn around in fortunes, injecting €500bn into the banks in June.
[Oakley, David and Ralph Atkins (17 September 2009) [http://www.ft.com/cms/s/0/0cf1c0ee-a3b5-11de-9fed-00144feabdc0.html Eurozone shows its strength in a crisis], Financial Times]
2010 emerging sovereign debt crisis
In early 2010, fears of a sovereign debt crisis developed concerning eurozone countries such as Greece, Spain, Ireland, and Portugal.
This led to a crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other eurozone members, specifically Germany and France. A recently failed government bond auction in Portugal has served to further intensify the fear that the emerging sovereign debt issues may become a new global contagion. These fears led to a weakening of the euro and a widespread global stock and commodity selloff in February 2010.