Enlargement and the euro[fr][de] 

On 1 January 1999, eleven EU countries started the eurozone. On that day, the exchange rates of all EMU currencies were irrevocably fixed and the euro was officially introduced as legal currency.

In January 2002, euro coins and bank notes were introduced and six months down the road national currencies disappeared.

The UK, Sweden and Denmark decided to stay out of the eurozone for now, whereas Greece initially did not join because it failed to meet the Maastricht criteria. On 1 January 2001, Greece became the 12th country to adopt the common currency after it fulfilled all requirements. 

All applicants must fulfill a number of formal and substantial conditions before joining the euro:

• Maastricht convergence criteria of fiscal stability;
• Central Bank independence;
• Low inflation and interest rates;
• Monetary stability of their currencies by participating in the Exchange Rate Mechanism II (ERM II) for a minimum period of two years. 

No restrictions are placed on the candidate countries' exchange rate policies before entry to the EU. Once they have gained EU membership they are expected to treat the exchange rate as a matter of common interest. Some voices in the EU have warned that premature efforts to join ERM II or the euro area may, however, be harmful both to the new member states and to the euro area itself.

The eurozone hopefuls can already now re-denominate their external trade in the single currency. They also benefit from new sources of funding from the newly integrated euro financial markets, which have seen a massive number of international bonds denominated in the euro issued since the launch of euro in January 1999.

There is no eurozone exchange rate strategy that the newcomers should follow in the run-up to the Economic and Monetary Union (EMU). The European Council of Nice (December 2000) recommended that the candidates adopt such monetary policies which best suit their own economic conditions and are consistent with their other policies.

Following their accession, the new members participate in EMU with the status of member states with a derogation from adopting the euro. This status is granted in the Accession Treaties. During this phase, the new member states have to treat their exchange rate policy as a matter of common concern and they are expected to join the exchange rate mechanism known as ERM II.

Once the new member states reach a high degree of sustainable nominal convergence, which means fulfilling all the Maastricht Treaty convergence criteria, including at least two year participation in the ERM II, they can adopt the euro. 

Enthusiasm for early euro adoption has waned somewhat. While Slovenia joined the euro zone on 1 January 2007, most new member states are struggling to meet the entry conditions related to inflation, budget deficits, exchange rate stability and legal compatibility (Eight of the eleven candidates fall short of the inflation requirement, while excessive budget deficit is a problem for five out of eleven countries). Most countries have dropped target dates for entering the euro zone.

Slovakia still has 2009 as a target to join the euro zone. Lithuania's bid to join in January 2007 was rejected due to inflation concerns. Estonia and Latvia have delayed their euro adoption plans for the same reasons. The Baltic States have acknowledged that they are unlikely to adopt the euro before 2010. Other countries count on joining the common currency between 2010-2012 earliest.

In November 2004, the Commission's first comprehensive report on the new member states' practical preparations for the euro said that the process should be "faster and even smoother" than in the current eurozone members. The Commission also expected several EU-10 countries to introduce the euro in a "big bang" process - ie to simultaneously join the common currency and introduce the euro notes and coins.

In an August 2004 assessment report, the International Monetary Fund said that overall real GDP growth has picked up in the eurozone countries but domestic demand has remained sluggish, especially in Germany. The IMF experts shared the view that recovery will be underpinned by a firming of final domestic demand, but the output gap will narrow only slowly. Headline inflation pressures are projected by the IMF to subside by 2005. The main problem of the eurozone, according to IMF, was lacklustre potential growth, which threatened the financial viability of social protection systems given the prospect of rapid population ageing.

According to a June 2004 report by PriceWaterhouseCoopers, the "performance of euroland remains fragile, reflecting generally weak domestic demand conditions and the effects of past falls in the dollar against the euro and heightened geopolitical tensions". For the eurozone as a whole, PWC predicted GDP growth to reach around 2.25 per cent in 2005, with Spain featuring as the most buoyant economy. Growth rates in Poland, Hungary and the Czech Republic are expected by PWC to remain well above the EU average.

In his presentation, the International Monetary Fund's alternate executive director, Hari Vittas, has warned the new EU members against rushing into entering the ERM and to avoid (if possible) prolonged stay there. It is useful, he says, for the affected countries to have a clear target date for adopting the euro. 

Economic research at Credit Suisse suggests that Malta and Cyprus will be ready in 2008 and Slovakia by 2009. The Baltic states along with Poland, the Czech Republic and Hungary, as well as Bulgaria and Romania are expected to wait for the euro until the next decade.