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What is the Eurozone?

2016-12-02T09:52:10+00:00

The term 'Eurozone' is included in the Banking edition of the Financial Dictionary. Get yours now on mazon in ebook or paperback format. Read more here...

The Eurozone is the economic and physical geographical area that covers all countries which have completely adopted the euro for their national currency. All Eurozone countries are in the European Union, but not all EU countries participate in the Eurozone. The ones that are a part of the Euro are also members of the European Central Bank.

This Eurozone group proves to be among the biggest and most important economic regions of the globe. The euro currency has some of the greatest liquidity on earth as well. Its position is second only to the U.S. dollar. As the currency has continued to grow and build larger followings, it has become the second reserve currency in the world. A great number of central banks count the euro among their main or significant reserves.

The euro is considered to be the official currency for the member states of the EU. This is true even though around a third of the European Union countries do not use the Euro at all. The EU introduced the euro to the financial world in 1999 and created the Eurozone at the same time.

For the first three years, it did not have a physical currency representation and could only be utilized in cashless payments or for accounting uses. In 2002 the Eurozone introduced the first Euro notes and coins. The ESCB European System of Central Banks prints and manages the euro currency bank notes and coins.

The nations that adopted it make up the Eurozone. As of 2016 these include Spain, Slovenia, Slovakia, Portugal, the Netherlands, Malta, Luxembourg, Lithuania, Latvia, Italy, Ireland, Greece, Germany, France, Finland, Estonia, Cyprus, Belgium, and Austria. This represents 339 million people who utilize the euro on a daily basis. Both Denmark and the United Kingdom have opt outs and are not required to use the Euro as their national currencies at any point going forward.

Other countries in the EU are supposed to work towards adopting the euro at some point in the future. In 2016 these countries include Sweden, Romania, Poland, Hungary, the Czech Republic, Croatia, and Bulgaria. The idea behind the euro is that it is supposed to eventually be a national currency in common of all individual EU nations that do not have opt outs.

There are several benefits for a country in having and using the euro. It takes away the risk of moving exchange rates for banks and businesses that are working in multiple Eurozone countries. It is easier for non-EZ businesses to operate in these countries as well. It makes travel for individuals simpler. Not everyone in these nations is a fan of the euro as a currency though.

Euro critics have a few valid complaints. They make the case that it has created negative consequences for some countries. Monetary policy in these Eurozone countries is now set by the European Central Bank. This means that member states of the EU who are part of the euro currency union have lost their individual ability to put into place monetary policies that are specifically tailored for their own particular needs. Instead they are a prisoner of monetary policy that has been set to work for the whole of the euro area. This is the case even when local monetary needs are significantly different for some countries than for the whole of the Eurozone.

Periphery countries like Greece and Portugal that suffered from the European sovereign debt crisis badly needed to be able to devalue their currencies to make their exports more competitive and attempt to boost economic growth. Because they did not have their own currencies and independent central banks, they could not do this.

The term 'Eurozone' is included in the Banking edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.