The eurozone officially called the euro area, is an economic and monetary union (EMU) of 17 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, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other EU states (except for the United Kingdom, Denmark and de facto Sweden) 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.
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 co-operation does take place through the Euro Group, which makes political decisions regarding the eurozone and the euro. The Euro Group is composed of the finance ministers of eurozone states, however in emergencies, national leaders also form the Euro Group.
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.
Monaco, San Marino and Vatican City have concluded formal agreements with the EU to use the euro as their official currency and issue their own coins. Andorra negotiated a similar agreement which will permit them to issue euros as early as 1 July 2013. Others, like Kosovo and Montenegro, have adopted the euro unilaterally. However, these countries do not formally form part of the eurozone and do not have representation in the ECB or the Euro Group.
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 will permit it to issue its own euro coins as early as 1 July 2013, provided that Andorra implements relevant EU legislation. They are expected to issue their first coins on 1 January 2014.
Kosovo[g] and Montenegro officially adopted the euro as their sole currency without an agreement and, therefore, have no issuing rights. These states are not considered part of the eurozone by the ECB. However, sometimes the term eurozone is applied to all territories that have adopted the euro as their sole currency. Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.
Expulsion and secession
While the eurozone is open to all EU member states to join once they meet the criteria, the treaty is silent on the matter of states leaving the eurozone, neither prohibiting nor permitting it. Likewise there is no provision for a state to be expelled from the euro. Some, however, including the Dutch government, favour such a provision being created in the event that a heavily indebted state in the eurozone refuses to comply with an EU economic reform policy.
The benefits of leaving the euro would vary depending on the exact situations. If the replacement currency were expected to devalue, the state would experience a large scale exodus of money, whereas if the currency were expected to appreciate then more money would flow into the economy. Even so a rapidly appreciating currency would be detrimental to the country’s exports.
A problem is that leaving the euro can’t be done so quickly, banknotes must for example be printed. So during preparations, a lot of money would leave the country, and people can be expected to withdraw euro in cash, causing a bank run. The theory on a normal devaluation of a currency says it must be done immediately after it is presented.