Chapter 5 The Euro and the European Central Bank (ECB): Theory of Optimum Currency Area Revisited

On January 1, 1999, the euro became the common currency of the 11 Member States of the European Union (EU) – Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxemburg, The Netherlands, Portugal, and Spain, to be joined by Greece in 2000. The 12 were joined by Slovenia on January 1, 2007, Malta and Cyprus on January 1, 2008, and Slovakia on January 1, 2009. Estonia was scheduled to be the 17th member of the Eurozone on January 1, 2011, and was admitted to the Eurozone membership in September 2010. Following Slovenia and Slovakia, Estonia is the third former Communist state to join the Euro regime. It is, however, the first former Soviet republic to earn this honor. The remaining East European countries, who were admitted to EU membership by the Treaty of Rome in 2004, will become members of the Eurozone after a process of scrutiny. Each must satisfy the terms of the Maastricht Treaty of 1992. Denmark, Sweden, and the United Kingdom, three of the original EU-15 countries, continue to be outside the Eurozone. However, Sweden and Denmark have limited exchange rate fluctuations with the euro. The United Kingdom has a different story. Its economic structure and its relatively small share of world GDP have become an issue. The declining share of the United Kingdom's pound sterling as an international reserve currency warrants much critical evaluation.