On January 1, 2023, Croatia joined the Schengen area and the eurozone – almost 10 years after the country became a member of the European Union. In this blog, we will briefly describe the development of the eurozone, the positive and negative sides of the countries’ accession to the eurozone, and the reasons why some EU countries did not adopt the euro currency.
The history of the Euro dates back to the 1990s when the European Union began to explore the idea of a common currency. The Euro was officially introduced in 1999, and physical notes and coins began circulating in 2002. The goal of the Euro was to increase economic integration and stability within the EU. The process of adopting the Euro is called “euro adoption” or “euroization”. The countries that have adopted the Euro are known as the eurozone. The legal implications of the Euro are primarily related to the EU’s monetary policy, which is managed by the European Central Bank. Countries that adopt the Euro must give up control of their monetary policy and instead adopt the policies set by the ECB. This can significantly affect a country’s economy and be a significant political issue. The Euro plays a central role in the European internal market and the world.
In the European internal market, the Euro facilitates the free movement of goods, services, and capital within the eurozone. It allows for easy comparison of prices and eliminates the need for currency exchange when conducting business within the eurozone. This helps to increase trade and investment within the EU, promoting economic growth and integration. It is the second most traded currency in the world, after the US dollar. The Euro is considered to be a “safe haven” currency, meaning that investors tend to flock to the Euro during times of economic uncertainty, as it is seen as a stable currency. It also serves as an alternative to the dollar in international trade and finance. The European Central Bank’s monetary policy decisions also have global implications and can affect the value of the Euro in the international currency markets.
Not all EU countries have adopted the Euro as their official currency. These countries, known as the “opt-outs,” include Denmark, Norway, Sweden, Poland, Hungary, Czechia, etc. These countries have chosen to retain their own currencies for various reasons, including concerns over losing control of monetary policy and the potential impact on their economies.
Several reasons why some EU countries do not use the Euro as their official currency.
- Economic considerations: Some countries may not meet the economic criteria set by the EU for adopting the Euro, such as maintaining a low inflation rate and a stable exchange rate.
- Sovereignty concerns: Some countries may be hesitant to give up control of their monetary policy to the European Central Bank and may prefer to retain the ability to set their own monetary policy.
- Potential impact on the economy: Some countries may be concerned about the potential impact that adopting the Euro could have on their economy, such as increased inflation or a loss of competitiveness.
- Political considerations: Some countries may have a strong sense of national identity and prefer to retain their own currency as a symbol of their sovereignty.
- The UK chose to remain with GBP (before Brexit) due to its historical, cultural and economic ties with the pound and its Commonwealth.
- Denmark and Sweden are also opt-outs; their decision was motivated by the same reasons as the UK.
Other EU countries, such as Bulgaria and Romania, have yet to meet the euro adoption criteria and continue using their own currencies.
In summary, the Euro plays a central role in the European internal market by facilitating the free movement of goods, services and capital, and also on the global level, by being a major global currency, used as a reserve currency by central banks and as a denomination for international trade and investment. It is considered to be a key player in the global monetary system, and its stability is closely watched by investors and policymakers around the world.
- Stefanie Kleimeier, Harald Sander, Economic Modelling Journal, “Twenty years with the Euro: Eurozone banking market integration revisited”, posted on 23rd June 2022, available at: https://www.sciencedirect.com/science/article/pii/S0264999322001869?via%3Dihub
- Rebecca Ann Hughes, “As Croatia joins the euro, which 7 EU countries still use their own currency?”, available at: https://www.euronews.com/travel/2022/12/08/as-croatia-joins-the-euro-which-7-eu-countries-still-use-their-own-currency
- Jean Dermine, Financial Markets, Institutions & Instruments, “European Banking Integration: Don’t Put the Cart before the Horse”, posted on 13th April 2006, available at: https://onlinelibrary.wiley.com/doi/10.1111/j.0963-8008.2006.00114.x
- Larry Elliott, The Guardian, “Britain and the euro: what if we’d joined?”, posted on 2nd June 2013, available at: https://www.theguardian.com/business/economics-blog/2013/jun/02/britain-euro-what-if-joined
- Frumak I. V., “Process formirovaniya evrozoni”, available at: https://cyberleninka.ru/article/n/protsess-formirovaniya-evrozony/viewer
- Jens-Hinrich Binder, European Business Organization Law Review, “The Banking Union and the Governance of Credit Institutions: A Legal Perspective”, posted on 27th October 2015.
- Andrey Yakovlev, Ekonomiceskiye nauki, “Ocenka tekushego polojeniya i nekotorix perspektiv ispolzovaniya evro kak nadnacionalnoy valyuti”, available at: https://cyberleninka.ru/article/n/otsenka-tekuschego-polozheniya-i-nekotoryh-perspektiv-ispolzovaniya-evro-kak-nadnatsionalnoy-valyuty/viewer
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