Download Adopting the euro

Lesson 8-9 summer 2015
Actual development on the financial
market
i. Euro countries
ii. CZK market
Eurozone (euro area)
The Eurozone:
Eurozone countries in the European Union (18)
EU state part of the ERM II, obliged to join the
Eurozone (Lithuania)
EU state part of the ERM II, not obliged to join
the Eurozone, however, ongoing debate in this
country (Denmark)
EU state not obliged to join the Eurozone (the
United Kingdom)
Non-ERM II EU states obliged to join the
Eurozone (7)
Outside the EU with issuing rights by agreement
(4)
Outside the EU, using the euro unilaterally (2)
Currency
Union type
Established
Euro
Economic & Monetary
1 January 1999
18
Governance
Political control
Eurogroup
Group president
Jeroen Dijsselbloem
Issuing authority
European Central Bank
ECB president
Mario Draghi
Affiliated with
European Union
Statistics
Population (2012) 332,839,084
GDP (2012)
€9.5 trillion
Interest rate
0.50%
Inflation
1.6%
Unemployment
11.7%
Trade balance
€81.8 bn surplus
Members
The eurozone, officially called the euro area, is an economic and monetary union
(EMU) of 18 European Union (EU) member states that have adopted the euro (€) as
their common currency and sole legal tender. The eurozone currently consists of
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy,
Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.
Other EU states (except for the United Kingdom and Denmark) are obliged to join
once they meet the criteria to do so. No state has left and there are no provisions to do
so or to be expelled.
Monaco, San Marino, the Vatican City and Andorra have formal agreements with the
EU to use the euro as their official currency and issue their own coins. Other states,
like Kosovo and Montenegro, have adopted the euro unilaterally, but these countries
do not formally form part of the eurozone and do not have representation in the ECB
or the Eurogroup.
Monetary policy of the zone is the responsibility of the European Central Bank (ECB)
which is governed by a president and a board of the heads of national central banks.
The principal task of the ECB is to keep inflation under control. Though there is no
common representation, governance or fiscal policy for the currency union, some cooperation does take place through the Eurogroup, which makes political decisions
regarding the eurozone and the euro. The Eurogroup is composed of the finance
ministers of eurozone states, but in emergencies, national leaders also form the
Eurogroup.
Since the late-2000s financial crisis, the eurozone has established and used provisions
for granting emergency loans to member states in return for the enactment of
economic reforms. The eurozone has also enacted some limited fiscal integration, for
example in peer review of each other's national budgets. The issue is highly political
and in a state of flux as of 2011 in terms of what further provisions will be agreed for
eurozone reform.
Member states
In 1998 eleven member states of the European Union had met the euro convergence
criteria, and the eurozone came into existence with the official launch of the euro
(alongside national currencies) on 1 January 1999. Greece qualified in 2000 and was
admitted on 1 January 2001 before physical notes and coins were introduced on 1
January 2002 replacing all national currencies. Between 2007 and 2014, six new
states acceded.
Enlargement
Main article: Enlargement of the eurozone
Ten countries (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Lithuania,
Poland, Romania, Sweden, and the United Kingdom) are EU members but do not use
the euro, though Lithuania is due to adopt the euro from 1 January 2015. Before
joining the eurozone, a state must spend two years in the European Exchange Rate
Mechanism (ERM II). As of 2014, the National Central Banks (NCBs) of Lithuania
and Denmark participate in ERM II.
Denmark and the United Kingdom obtained special opt-outs in the original Maastricht
Treaty. Both countries are legally exempt from joining the eurozone unless their
governments decide otherwise, either by parliamentary vote or referendum. Sweden
gained a de facto opt-out by using a legal loophole. It is required to join the eurozone
as soon as it fulfils the convergence criteria, which include being part of ERM II for
two years; joining ERM II is voluntary. Sweden has so far decided not to join ERM
II.
The 2008 financial crisis increased interest in Denmark and initially in Poland to join
the eurozone, and in Iceland to join the European Union, a pre-condition for adopting
the euro. However, by 2010 the debt crisis in the eurozone caused interest from
Poland and the Czech Republic to cool. Lithuania plans to adopt the euro in 2015.
Non-member usage
Further information: International status and usage of the euro
The euro is also used in countries outside the EU. Three states – Monaco, San
Marino, and Vatican City have signed formal agreements with the EU to use the euro
and issue their own coins. Nevertheless, they are not considered part of the eurozone
by the ECB and do not have a seat in the ECB or Euro Group. Andorra's monetary
agreement with the EU to use the euro came into force in April 2012 and would have
permitted it to issue its own euro coins as early as 1 July 2013, provided that Andorra
implemented relevant EU legislation. They were expected to issue their first coins on
1 January 2014. However, EU approval to begin minting the coins was delayed until
December 2013, so the first Andorran coins were delayed, with Minister of Culture
Stephen Albert stating that he was optimistic they would be released by March or
April 2014.
Kosovo and Montenegro officially adopted the euro as their sole currency without an
agreement and, therefore, have no issuing rights. These states are not considered part
of the eurozone by the ECB. However, sometimes the term eurozone is applied to all
territories that have adopted the euro as their sole currency.
The Czech koruna
or Czech crown (sign: Kč; code: CZK) has been the currency of the Czech Republic
since 8 February 1993 when, together with its Slovak counterpart, it replaced the
Czechoslovak koruna at par.
The official name in Czech is koruna česká (plural koruny české, though the zerograde genitive plural form korun českých is used on banknotes and coins of value 5
Kč or higher). The ISO 4217 code is CZK.
Adopting the euro
Initially, the Czech Republic planned to adopt the euro as its official currency in
2010, however evaluations in 2006 found this date to be unlikely. In February 2007,
the Finance Minister said 2012 was a "realistic" date, but by November 2007 this was
said to be too soon. In August 2008, an assessment said that adoption was not
expected before 2015 due to political reluctance to the subject. However, in October
2009, the then Finance Minister, Eduard Janota, stated that 2015 was no longer
realistic. In June 2008, the Central bank governor Zdeněk Tůma speculated about
2019.
In late 2010 a discussion arose within the Czech government, partially initiated by
then President Václav Klaus, a well known eurosceptic, over negotiating an opt-out
from joining the eurozone. Czech Prime Minister Petr Nečas later stated that no optout was required because the Czech Republic could not be forced to join the ERM II
and thus could decide if or when to fulfill one of the necessary criteria to join the
eurozone, an approach similar to the one of Sweden. Nečas also stated that his cabinet
would not decide upon joining the ERM II during its term.
During the European sovereign debt crisis, Nečas said that since the conditions
governing the eurozone had significantly changed since their accession treaty was
ratified, he believed that Czechs should be able to decide by a referendum whether to
join the eurozone under the new terms. One of the government's junior coalition
parties, TOP09, was opposed to a euro referendum.
In April 2013, the Czech Ministry of Finance stated in its Convergence Programme
delivered to the European Commission that the country had not yet set a target date
for euro adoption and would not apply for ERM II membership in 2013. Their goal
was to limit their time as an ERM II member, prior to acceding to the eurozone, to as
brief as possible. On 29 May 2013 Miroslav Singer, the Governor of the Czech
National Bank (the Czech Republic's central bank) stated that in his professional
opinion the Czech Republic will not adopt the euro before 2019. In December 2013,
the Czech government approved a recommendation from the Czech National Bank
and Ministry of Finance against setting a formal target date for euro adoption or
joining ERM II in 2014.
Miloš Zeman, who was elected President of the Czech Republic in early 2013,
supports euro adoption by the Czech Republic, though he also advocates for a
referendum on the decision. Shortly after taking office in March 2013, Zeman
suggested that the Czech Republic would not be ready for the switch for at least five
years. Prime Minister Bohuslav Sobotka, from the Social Democrats, stated on 25
April 2013, prior to his party's election victory that October, that he was "convinced
that the government that will be formed after next year's election should set the euro
entry date" and that "1 January 2020 could be a date to look at". Shortly after being
sworn into the new Cabinet in January 2014, Czech Foreign Minister Lubomír
Zaorálek stated that the country should join the eurozone as soon as possible. The
opposition TOP 09 ran on a platform in the 2013 parliamentary election that called for
the Czech Republic should adopt the euro between 2018-2020