Enlargement of the eurozone
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Enlargement of the eurozone is currently a policy of the European Central Bank, enforced by EU treaties. The first expansion was that of Greece, the currency of which was not irrevocably fixed against the euro until 2001, however, Greece exchanged its physical currency on 1 January 2002, the same day as the founding members. The next expansion was the addition of Slovenia to the eurozone on 1 January 2007; Cyprus and Malta joined on 1 January 2008. Slovakia will be the next country to join the common currency from 1 January 2009.[1]
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[edit] Accession criteria
In order to officially join the eurozone (thus having the ability to mint coins separately), a country must generally first be a member of the European Union, and then meet certain economic criteria, including accession to the European Exchange Rate Mechanism (ERM II), which fixes the acceding country's national currency's exchange rate to the euro, within a specified band (normally ±15%).
European microstates that have monetary agreements with acceding countries can continue these agreements to mint separate coins on the accession of the larger state, but do not get a say in the economic affairs of the eurozone. This has been used so far to allow Monaco, San Marino and the Vatican City to mint their own coins, and Andorra is in the process of negotiating such an agreement.
[edit] Historical enlargements
- For the process of the introduction of the euro to the original member states, see Introduction of the euro.
[edit] Greece
Greece was the first country to join the eurozone after the launch of the currency in 1999. The exchange rate between the Greek drachma and the euro was fixed on 19 June 2000, and Greece formally joined the eurozone on 1 January 2001. Greek drachma coins and notes were replaced with euro coins and banknotes on 1 January 2002, together with all the original euro countries.
[edit] Slovenia
Slovenia was the first country to join the eurozone after the launch of the coins and banknotes, with the euro replacing the Slovenian tolar on 1 January 2007. The exchange rate between the euro and tolar had been set on 11 July 2006, but unlike the previous launches, cash and non-cash transactions were introduced simultaneously.
[edit] Cyprus
Cyprus replaced the Cypriot pound with the euro on 1 January 2008.[2] A formal letter of application was submitted on 13 February 2007.[3] On 16 May 2007 the European Commission backed by the European Central Bank gave its green light for the introduction in January 2008.[4] The final decision was taken by the EU finance ministers (Ecofin) on 10 July 2007 and the conversion rate was fixed at 0.585274 CYP.[5] The new currency is only used in the government-controlled areas of the Republic, the Sovereign Base Areas of Akrotiri and Dhekelia (under UK jurisdiction, outside the EU) and in the United Nations Buffer Zone in Cyprus.[6] The de facto Turkish Republic of Northern Cyprus still continues to use the new Turkish lira.[citation needed]
[edit] Malta
Malta replaced the Maltese lira with the euro on 1 January 2008.[7] The aims were officially confirmed on 26 February 2007.[8] On 16 May 2007, the European Commission backed by the European Central Bank gave its green light for the introduction in January 2008.[4] The EU finance ministers gave the green light on 10 July 2007 and the conversion rate was fixed at 0.429300 MTL.[5]
[edit] ERM II members
| Currency | Abbr. | Rate | Conv goal |
|---|---|---|---|
 Slovak koruna |
SKK | 30.1260[9] | 2009-01-01 |
 Lithuanian litas |
LTL | 3.45280 | 2010-01-01 |
 Estonian kroon |
EEK | 15.6466 | 2011-01-01 |
 Bulgarian lev |
BGN | 1.95583[10] | 2012-01-01 |
 Polish złoty |
PLN | — | 2012-01-01 |
 Latvian lats |
LVL | 0.702804 | 2012-01-01 |
 Czech koruna |
CZK | — | 2012-01-01 |
 Hungarian forint |
HUF | — | 2012-01-01 |
 Romanian leu |
RON | — | 2014-01-01 |
 Swedish krona |
SEK | — | — |
All other EU members are formally expected to join the eurozone eventually, except for Denmark and the United Kingdom, who have derogations under the Maastricht Treaty. The following members have acceded to ERM II, which they must spend two years in before they can adopt the euro.
[edit] Slovakia
Slovakia will adopt the euro on January 1, 2009.
The koruna has been part of ERM II since November 28, 2005, requiring that it trade within 15% of an agreed central rate; this rate was changed on March 17, 2007 and again on May 28, 2008.
To assist the process of conversion to the euro, on April 1, 2008, the Slovak Central Bank (NBS) announced their plan for withdrawal, disposal and destruction of the Slovak koruna notes and coins, making Slovakia introduction to the eurozone in 2009 even more imminent [11]. A few days later, on April 5, 2008, Slovakia officially applied to enter the eurozone [12]. On May 7, 2008, the European Commission approved the application and asked member states to endorse the bid during the EU finance minister's meeting in July 2008 [13][14][15].
Slovakia's 12 month inflation was 2.2% compared with 3.2% that is required. Annual inflation however was 3.6% for March 2008. Fiscal deficit was 2.2% versus the reference value of 3.0%. And finally the government debt ratio was 29.4% of GDP in 2007, well below the maximum ratio of 60.0% [16].
[edit] Estonia
The kroon is part of ERM II, though in practice it is pegged to the euro at a rate of 15.6466 krooni = 1 euro (it was formerly pegged to the German Mark at 8 krooni = 1 German Mark).
Estonia has currently no target date for the changeover, although the last target date was for 1 January 2010.[17] The kroon is pegged to the euro at a fixed rate, almost all shops show prices in euro. Stamps also carry their euro face value.[18] Estonia originally aimed to adopt the euro on 1 January 2007, but this was postponed to 1 January 2008 (because Estonia did not meet the inflation criterion[19][20]) and then to 1 January 2010.[21]
The date has slipped further due to the expected inflation level.[22] On 11 November 2007, Estonian Prime Minister Andrus Ansip vowed to continue tight fiscal policies because he wanted the country to adopt the euro as soon as possible despite current high inflation.[23] On 14 March 2008, he said in an interview with Reuters that he sees eurozone entry in 2011.[24]
[edit] Lithuania
The Lithuanian litas is part of ERM II and in practice it is pegged to the euro at a rate of 3.45280 litai = 1 euro.
Lithuania originally set 1 January 2007 as the target date for joining the euro, but their application was rejected by the European Commission because inflation was slightly higher than the permitted maximum.[25] In December 2006 the government approved a new convergence plan which, whilst reaffirming that the government wanted to join the eurozone "as soon as possible", said that expected inflation increases in 2007-8 would mean the best period for joining the euro would be 2010 or after.[26] Prime Minister Gediminas Kirkilas said on 4 December 2007 that Lithuania "will be able to join the eurozone in the time frame of 2010 to 2011."[27]
An opinion poll published in January 2007 showed that more Lithuanians opposed euro adoption than supported it.[25]
[edit] Latvia
The lats is in ERM II, and floats within 1% of the central rate, Ls 0.702804 = €1. Latvia expects to adopt the euro in 2012 at the earliest,[28] but originally aimed to adopt the euro on 1 January 2008. Due to problems with inflation, Latvia was forced to delay this date.[29]
[edit] Denmark
Denmark has pegged its krone to the euro (€1 = DKK 7.46038 ± 2.25%) and the krone remains in the ERM.
In December 1992 Denmark negotiated a number of opt-out clauses from the Maastricht treaty (see Edinburgh Agreement), including not adopting the euro as currency. This was done in response to the Maastricht treaty having been rejected by the Danish people in a referendum earlier that year. As a result of the changes, the treaty was finally ratified in a subsequent referendum held in 1993. On 28 September 2000, another referendum was held in Denmark regarding the euro resulting in a 53.2% vote against joining.
On 22 November 2007, the newly re-elected Danish government declared its intention to hold a new referendum about abolishing the four opt-out clauses, including the euro, by 2011.[30]. A poll was conducted between March 31 and April 2, 2008 with the majority of Danes in favour of adopting the euro.[31]
[edit] Obliged to join
The following members must first join ERM II before they can adopt the euro.
[edit] Bulgaria
The lev is not part of ERM II, but has been pegged to the euro since its launch. It was previously pegged on a par to the German Mark (1.95583 leva is 1 euro). Hence, Bulgaria already fulfilled the great majority of the EMU membership criteria and must, from 2009, comply with the Maastricht criteria to join the eurozone in 2012, the tentative deadline set by Finance Minister Plamen Oresharski.[32]
While the currency board which pegs Bulgaria to the euro has been seen as beneficial to the country fulfilling EMU criteria so early,[33] the ECB has been pressuring Bulgaria to drop it as it did not know how to let a country using a currency board join the euro. The Prime Minister has stated he would wish to keep the currency board until the euro was adopted, but factors such as high inflation, an unrealistic exchange rate with the euro and the low productivity is made worse by the system.[34]
Bulgaria meets three and fails on two criteria in order to join the eurozone. It derogates on the price stability criterion, which envisages that its inflation does not exceed that of the three EU member states with the lowest inflation (Malta, the Netherlands and Denmark) by 1.5%. Bulgaria’s inflation in the 12 months to March 2008 reached 9.4%, well above the reference value of 3.2%, the report said.
On the upside, Bulgaria fulfils the state budget criterion, which foresees that the deficit does not exceed 3% of the country’s gross domestic product (GDP). Over the past few years, the report said, the country has consistently improved its budget fundamentals and since 2003, a break-even point, the budget ran surpluses and in 2007 was at 3.4% of GDP. The EC forecasts that it will remain at 3.2% of GDP in both 2008 and 2009.
In regard to public debt, Bulgaria has also been within the prescribed cap of 60% of GDP. Government debt has also been declining consistently, from 50% of GDP to 18% in 2007. The expectation are to reach 11% of GDP in 2009.[35]
[edit] Czech Republic
The Czech Republic is similarly bound by the Treaty of Accession 2003 to join the euro at some point, but this is not likely to come soon. The koruna is not part of ERM II. Since joining the EU in 2004, the Czech Republic has adopted a fiscal and monetary policy that aims to align its macroeconomic conditions with the rest of the European Union. Currently, the most pressing issue is the large Czech fiscal deficit. Originally, the Czech Republic aimed for entry into the ERM II in 2008 or 2009, but the current government has officially dropped the 2010 target date, saying it will clearly not meet the economic criteria. It has been suggested that 2013 is the earliest possible changeover date.
[edit] Hungary
Hungary's government has all but dropped plans to adopt the euro by the original date of 1 January 2010. Most financial studies, such as those produced by Standard & Poor's and by Fitch Ratings, suggest that Hungary will not be able to adopt the common European currency before 2011 - 2012, due to the country's high deficit, which in 2006 exceeded 10% of the GDP.
[edit] Poland
Poland is bound by the Treaty of Accession 2003 to join the euro at some point, but current indications are that this will not be for several years to come as economic criteria must be met. The złoty is not part of ERM II, itself a requirement for euro membership.
In May 2006 the former Polish government had set its target date for euro introduction for 1 January 2012. The new prime minister, Donald Tusk, declared at the new government launch in November 2007, that its intention is to join as soon as possible, but only after the budget is close to balance. In March 2008, Tusk said Poland should be ready to adopt the euro in 2012, but he also said that whether this decision will be made in 2012 is another matter.[36]
[edit] Romania
Romania will replace the current national currency, the Romanian leu, with the euro once Romania fulfills the convergence criteria. The euro will probably be adopted by Romania in 2014, but not before 2011, according to Romanian National Bank's governor, Mugur Isărescu.
[edit] Sweden
According to the 1994 accession treaty [1], approved by referendum (52% in favour of the treaty), Sweden is required to join the euro and therefore must convert to the euro at some point. Notwithstanding this, on 14 September 2003, a second referendum was held on the euro, the result of which was 56% against adopting the common currency versus 42% in favour.[37] The Swedish government has argued that staying outside the euro is legal since one of the requirements for eurozone membership is a prior two-year membership of the ERM II; by simply choosing to stay outside the exchange rate mechanism, the Swedish government is provided a formal loophole avoiding the requirement of adopting the euro. Some of Sweden's major parties continue to believe that it would be in the national interest to join, but they have all pledged to abide by the result of the referendum for the time being and show no interest in raising the issue.
A very optimistic timetable is to hold a new referendum in 2012 and adopt the euro in 2015. A faster timetable is unlikely, while a slower one is more than likely. Prior to the September 2006 parliamentary elections, all major parties agreed not to raise the question before the following parliamentary elections (to be held in September 2010). The parties seem to agree that Sweden would not adopt the euro until after a second referendum. The Prime minister stated in December 2007 that there will be no referendum until there is a stable support in the polls [38]. The polls have instead shown a stable support for the "no" alternative. The latest one from November 2007 showed 35% yes, 51% no, 14% uncertain.[39]. The EU has made it clear that it will tolerate this with respect to Sweden but not those member states that joined in 2004 or 2007.
[edit] United Kingdom
- Further information: five economic tests
The U.K. currency is the pound sterling and the country has an opt-out from eurozone membership. The government of former Prime Minister Tony Blair set "five economic tests" that must be passed before it can recommend that the UK join the euro; and pledged to hold a public referendum for deciding membership should those five economic tests be met. In addition to this own internal (national) criteria, the UK has to meet the EU's economic convergence criteria (Maastricht criteria), before being allowed to adopt the euro. Currently, the UK's annual government deficit to the GDP is above the defined threshold.
Furthermore, Great Britain is about to go forward with its new coin designs despite outcries from some circles against the upcoming changes, reaffirming the country's determination not to adopt the euro single currency any time soon. [40]
The Sovereign Base Areas of Akrotiri and Dhekelia introduced the Euro at the same time as Cyprus on 2008-01-01. They do not have separate euro coins.
[edit] Future members
Croatia is assumed to soon become a member of the European Union. The negotiations are nearly finished and membership is expected in 2010 or 2011. After that they will be obliged to adopt the euro. They fulfil the convergence criteria (inflation 2.6%, budget balance -3,0%, public debt 56.2% year 2006). The adoption of the euro would have to be delayed until at least three years after membership (Slovenia took 3 years), but it could also take several more years.[citation needed]
In Iceland there has been some discussion about adopting the euro without becoming an EU member because of the instability of the Icelandic króna. The EU does not allow this and the Icelandic government isn't planning to join.[41] There is also discussion on membership of the European Union itself (see Iceland and the European Union), which would oblige Iceland to join the euro.
[edit] Summary of adoption progress
- See also: Convergence criteria
The new member states should be adopting the euro as soon as appropriate guidelines are met. For these new member states, the single currency was "part of the package" of European Union membership – unlike the UK and Denmark, "opting out" is not permitted.
The dates the remaining states are expected to enter the third stage of the EMU and adopt the euro vary: 2009 for Slovakia; early 2010 for Lithuania; 2011 for Estonia; 2012 for Bulgaria and Latvia; 2013 or 2014 for Poland; 2014 for Romania. The Czech Republic was set to join on 1 January 2010, but can no longer do so due to economic conditions. A new date has not been set, it will probably not be before 2012. Hungary has also abandoned its original target date 2010, without any new date.
On 16 May 2006 the European Commission recommended Slovenia to become a new member of the eurozone. This occurred on 1 January 2007. On May 2007 the European Commission recommended the same for Cyprus and Malta and occurred from 1 January 2008.
Showing the ability to move towards full economic and monetary union is one requisite of "good membership". The ECB and European Commission produce reports every two years analysing the economic and other conditions of non-eurozone EU members, reporting on their suitability for joining the eurozone. The first to include the 10 new members was published in October 2004.[42]
| Slovakia |
Estonia |
Lithuania |
Bulgaria |
Hungary |
Latvia |
|
|---|---|---|---|---|---|---|
| Target date for euro adoption | 1 January 2009 | 1 January 2011 | 1 January 2010 | 1 January 2012 | Not set | Not before 2012[43] |
| ERM II entry | 28 Nov 2005 | 28 June 2004 | 28 June 2004 | Expected in 2009 | Expected in 2011[2] | 2 May 2005 |
| Co-ordinating institution | Ministry of Finance | The National Changeover Committee, created on 27 January 2005 | Commission for the Coordination of the Adoption of the euro in Lithuania, created on 30 May 2005 | Preparatory work is ongoing in the Ministry of Finance and Magyar Nemzeti Bank (Central Bank of Hungary) | The Steering Committee for the preparation and coordination of the euro changeover was established on 18 July 2005 | |
| Approved National Changeover Plan | First draft approved on 1 September 2005[44] | Report approved by the government on 21 June 2005. NCP will be approved in November 2005 | First version approved by the government on 27 September 2005 | Not yet approved | Approved on 6 July 2005 | |
| Type of scenario | Big-Bang[citation needed] | Big-Bang[citation needed] | Big-Bang[citation needed] | Big-Bang with possible phase out features[citation needed] | Big-Bang with possible phase out features | |
| Dual circulation period | 16 days | 2 weeks | 15 days | 1 month | 2 weeks | |
| Exchange of national currency | Comm. bank: banknotes until end 2009, coins until June 2009. Central bank: banknotes indefinitely, coins for 5 years | Comm. banks at least 6 months, Central bank indefinitely | Commercial banks 60 days, Central bank indefinitely. | Central bank: indefinitely | ||
| Dual display of prices | Compulsory: from one month after fixing of conversion rate till one year after euro adoption. Voluntary: for an additional 6 months | 6 months before and after €-day | 60 calendar days before until 60 days after €-day | October 2007-June 2008 | ||
| National mint | Yes | No | Yes | Yes | Yes | No |
| National side | Approved | Approved | Approved | Not yet decided | Not yet decided | Approved |
| Nr of different coin designs | 3 | 1 | 3 | 4 | ||
| Need for banknotes and coins | 150-200 million coins | 118.3 million banknotes, 290 million coins | 87 million banknotes and 300 million coins | |||
| Law adaptations | Umbrella law under consideration | Draft law on the adoption of the euro is prepared | ||||
| Communication strategy | Endorsed by the National Changeover Committee on 21 June 2005 | Endorsed by the government on 27 September 2005 | ||||
| Czech Republic |
Poland |
Romania |
Sweden |
 Denmark |
 United Kingdom |
|
| Target date for euro adoption | Not before 2012 | Not before 2013[45] | 1 January 2014[46] | Not under consideration | Not set | Not under consideration |
| ERM II entry | Not before 2011 | Not before 2012 | Not under consideration | 1 January 1999 | Not under consideration | |
| Co-ordinating institution | Inter-institutional working group MoF-NBP | |||||
| Approved National Changeover Plan | Approved on 11 April 2007[47] | |||||
| Type of scenario | Big-Bang | Big-Bang | ||||
| Dual circulation period | ||||||
| Exchange of national currency | ||||||
| Dual display of prices | 5 months before adoption 12 months after adoption |
|||||
| National mint | Yes | Yes | Yes | |||
| National side | Competition under consideration | Public survey under consideration | Not yet decided | Not yet decided | Not yet decided | Not yet decided |
| Nr of different coin designs | ||||||
| Need for banknotes and coins | 230 million banknotes and 950 million coins | |||||
| Law adaptations | ||||||
| Communication strategy |
[edit] See also
- Opt-outs in the European Union
- Convergence criteria
- Introduction of the euro
- Enlargement of the European Union
- History of the European Union
[edit] References
- ^ Slovakia confirmed as ready for Euro. euobserver.com. Retrieved on 2008-05-07.
- ^ Commission hails approval of the adoption of the euro in Cyprus and Malta. europa.eu. European Commission. Retrieved on 2007-12-24.
- ^ EUobserver Small EU states rush to join single currency
- ^ a b Cyprus and Malta set to join eurozone in 2008.
- ^ a b "Cyprus and Malta to adopt euros", BBC News, 2007-07-10. Retrieved on 2007-08-13.
- ^ Euro reaches field that is for ever England.
- ^ The European Commission hails approval of the adoption of the Euro in Cyprus and Malta.
- ^ EUobserver Malta's euro bid may test EU public debt criteria
- ^ The central rate of the Slovak koruna was originally 38.4550. The first revaluation on 17 March 2007 set the central rate to 35.4424. A second revaluation happened on 28 May 2008, lowering the rate once more to 30.1260. See Slovak koruna for details.
- ^ Bulgaria is not officially part of ERM II as of 7 January 2007. But as the Bulgarian lev exchange rate is fixed to the rate of German mark (and thus to the euro) country is included in the list.
- ^ NBS Preparing to Withdraw and Destroy Koruna Notes and Coins.
- ^ Most Danes want euro, Slovakia bids for 2009 eurozone entry.
- ^ Slovakia gets green light to join euro zone in 2009. The Guardian (2008-05-07). Retrieved on 2008-05-10.
- ^ Slovakia Secures Commission Approval for Euro Entry.
- ^ Slovakia won EU and ECB backing to adopt euro.
- ^ ECB Press Release of May 7, 2008.
- ^ Report on the Adoption of the Euro (page 17). Eesti Pank (2007-06-08). Retrieved on 2007-09-19.
- ^ Estonian manor halls. Taagepera/361-16.08.06. Eesti Post. Retrieved on 2006-09-12.
- ^ Government: We must be technically prepared for the adoption of euro on 1 January 2008. Eesti Pank. Bank of Estonia (2006-04-27). Retrieved on 2006-09-12.
- ^ Estonia's National Changeover Plan. Eesti Pank. Bank of Estonia. Retrieved on 2006-09-12.
- ^ Non, nein, no: Europe turns negative on the euro, The Times, 2006-12-31, accessed on 2007-01-01
- ^ Estonia raises inflation forecast, further dimming euro entry.. Budapest Business Journal. Retrieved on 2007-04-30.
- ^ Estonia to work out the inflation to join the eurozone.. Retrieved on 2007-11-11.
- ^ Estonia aims strongly to join the eurozone in 2001.. Retrieved on 2008-03-14.
- ^ a b Angus Reid Global Monitor (2007-01-02). Lithuanians Divided on Euro Adoption. Retrieved on 2008-01-09.
- ^ Adoption of the euro in Lithuania, Bank of Lithuania, accessed on 2007-01-11
- ^ "Lithuanian PM says aiming for euro by 2010-2011", Forbes, 2007-04-12. Retrieved on 2008-01-03.
- ^ "Don’t look for the Euro until after 2012", New Europe, 2007-08-18. Retrieved on 2007-12-27.
- ^ Inflation will delay euro adoption in Latvia: Standard & Poor's. EUbusiness (2006-03-08). Retrieved on 2006-09-12.
- ^ Danes to hold referendum on relationship with EU (English). Guardian Unlimited (2007-11-22). Retrieved on 2007-11-22.
- ^ Majority of Danes favour adopting euro.
- ^ "Bulgaria's budget of reform", The Sofia Echo, 2007-11-30. Retrieved on 2008-01-03.
- ^ BULGARIA COULD JOIN EURO ZONE AHEAD OF OTHER EU COUNTRIES.
- ^ EU SAID TO PRESSURE BULGARIA INTO DISCONTINUING CURRENCY BOARD.
- ^ The Sofia Echo. Retrieved on 2008-05-17.
- ^ Poland should be ready for euro adoption by 2012
- ^ Folkomröstning 14 september 2003 om införande av euron (Swedish). Swedish Election Authority. Retrieved on 2008-02-02.
- ^ Glöm euron, Reinfeldt (Swedish). Aftonbladet (2007-12-02). Retrieved on 2008-02-03.
- ^ EMU-/eurosympatier 1997-2007 (Swedish). Statistics Sweden (2007-12-18). Retrieved on 2008-01-03.
- ^ Make Way for Britain's New Coin Designs. Retrieved on 2008-05-17.
- ^ Iceland cannot adopt Euro with joining EU, says Stark (sic)
- ^ Convergence Report. European Central Bank (2006). Retrieved on 2006-09-12.
- ^ No euro in Latvia before 2012: premier, EU Business, 2006-06-01, accessed on 2007-06-02
- ^ Eurole üleminek (Estonian). Rahandusministeerium (2006-04-27). Retrieved on 2006-09-12.
- ^ "PM promises tax and deficit cuts, "fast" preparation for euro" (English). Poland's Business Portal for Foreign Investors and Resident Business Expatriates (2007-11-23). Retrieved on 2007-12-02.
- ^ Romania Plans to Adopt Euro in 2014. Retrieved on 2007-01-25.
- ^ www.eubusiness.com/news_live/1176300001.83.
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