What is the Eurozone?

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Overview:

The eurozone economy is set for only modest growth next year, despite wages rising faster than inflation for the first time in three years, according to a recent poll of economists.

About Eurozone

  • The eurozone, officially known as the euro area, is a geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency.
  • As of January 2023, the eurozone consists of 20 countries in the European Union (EU): 
  • Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
  • Not all European Union nations participate in the eurozone; some opt to use their own currency and maintain their financial independence.
  • The European Central Bank (ECB) exercises the sole power to set the monetary policy for the Eurozone countries.
    • The ECB exercises the sole authority to decide the printing and minting of euro notes and coins. It also decides the interest rate for the Eurozone. 
    • The ECBs is headed by a president and a board, comprising the heads of the central banks of the participating nations.
  • How do countries join Eurozone?
    • In order to join the euro area, EU member states are required to fulfil so-called 'convergence criteria' which consists of price stability, sound public finances, the durability of convergence, and exchange rate stability.
    • These binding economic and legal conditions were agreed upon in the Maastricht Treaty in 1992 and are also known as 'Maastricht criteria'.
    • All EU Member States, except Denmark, are required to adopt the euro and join the euro area once they are ready to fulfill them.
    • The Treaty does not specify a particular timetable for joining the euro area but leaves it to member states to develop their own strategies for meeting the condition for euro adoption.
    • The European Commission and the ECB jointly decide whether the conditions are met for euro area candidate countries to adopt the euro.

What is European Union (EU)?

  • The EU is a political and economic union of 27 member states located primarily in Europe.
  • The EU was established by the Maastricht Treaty, which entered into force on November 1, 1993.
  • The main goal of the EU is to promote cooperation and integration among its member states in order to enhance economic and political stability in Europe.
  • The EU has its own currency, the Euro, which is used by 19 of the member states. 
  • It has a single market where goods, services, and capital can move freely.

Q1) What is the European Commission? 

European Commission (EC) is an institution of the European Union (EU) and its constituent entities that makes up the organization’s executive arm. The EC also has legislative functions, such as proposing new laws for the European Parliament, and judicial functions, such as finding legal solutions to business and trade issues between countries within the EU. 

Source: Eurozone set for weak growth next year, say economists