The euro area is an economic and monetary union (EMU) of 16 EU Member States which have adopted the euro currency as their sole legal tender.
In 1999, 11 countries (Germany, Austria, Belgium, Spain, Finland, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal) created the Euro-zone.
Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009.
Estonia is ready to be the 17th country to adopt the euro on the 1st of January 2011! Final decision to be taken in July 2010.
The criteria called convergence criteria or Maastricht criteria are necessary to join the euro-zone. The purpose of setting criteria is to maintain price stability within the Eurozone even with the inclusion of new member states.
Those criteria are the following:
- Inflation rate: No more than 1.5 percentage points higher than the average of the three best performing (lowest inflation) member states of the EU.
- Government finance:
- Annual deficit: must not exceed 3% of GDP
- Government debt: must not exceed 60% of GDP
- Exchange rate: applicant should have joined second phase of exchange-rate mechanism (ERM II) under the European Monetary System (EMS) for 2 consecutive years and should not have devaluated its currency during that period
- Long-term interest rates: The nominal long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.
The ECB (European Central Bank) is responsible for the monetary policy of the eurozone. There is no common governance or common fiscal policy but some cooperation does take place through the Eurogroup which make the political decisions regarding the eurozone and the euro.