All European Union Member States are part of Economic and Monetary Union (EMU) and coordinate their economic policy-making to support the economic aims of the EU. However, a number of Member States have taken a step further by replacing their national currencies with the single currency – the euro. These Member States form the euro area.
When the euro was first introduced in 1999 – as 'book' money –, the euro area was made up of 11 of the then 15 EU Member States. Greece joined in 2001, just one year before the cash changeover, followed by Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015. Today, the euro area numbers 19 EU Member States.
Of the Member States outside the euro area, Denmark has an 'opt-out' from joining laid down in a Protocol annexed to the Treaty, although it can join in the future if it so wishes. Sweden has not yet qualified to be part of the euro area.
The remaining non-euro area Member States are among those which acceded to the Union in 2004, 2007 and 2013, after the euro was launched. At the time of their accession, they did not meet the necessary conditions for entry to the euro area, but have committed to joining as and when they meet them – they are Member States with a 'derogation', such as Sweden.
Andorra, Monaco, San Marino and the Vatican City have adopted the euro as their national currency by virtue of specific monetary agreements with the EU, and may issue their own euro coins within certain limits. However, as they are not EU Member States, they are not part of the euro area.
Governing the euro area
By adopting the euro, the economies of the euro-area members become more integrated. This economic integration must be managed properly to realise the full benefits of the single currency. Therefore, the euro area is also distinguished from other parts of the EU by its economic management – in particular, monetary and economic policy-making.
- Monetary policy in the euro area is in the hands of the independent Eurosystem, comprising the European Central Bank (ECB), which is based in Frankfurt, Germany, and the national central banks of the euro-area Member States. Through its Governing Council, the ECB defines the monetary policy for the whole euro area – a single monetary authority with a single monetary policy and the primary objective to maintain price stability.
- Within the euro area, economic policy remains largely the responsibility of the Member States, but national governments must coordinate their respective economic policies in order to attain the common objectives of stability, growth and employment. Coordination is achieved through a number of structures and instruments, the Stability and Growth Pact (SGP) being a central one. The SGP contains agreed rules for fiscal discipline, such as limits on government deficits and on national debt, which must be respected by all EU Member States, although only euro-area countries are subject to sanction – financial or otherwise – in the event of non-compliance.
- Implementation of the EU’s economic governance is organised annually in a cycle, known as the European Semester.