Eurozone is a monetary union of countries that use the euro as a currency. Currently, 19 out of 28 European Union countries are in the eurozone but others are required to adopt the common currency in the future. The remaining 9 countries have their own national currencies. These include two Nordic countries as well: Denmark and Sweden. Denmark, along with the UK, is not obliged to adopt the currency in the future either.
Sweden, on the other hand, is subject to the Treaty of Maastricht and is thus required to adopt the euro once all the necessary conditions are met. Nevertheless, Sweden does not have any plans in the nearest future to join the monetary union. Sweden uses the fact that joining European Exchange Rate Mechanism II, which is one of the conditions for eurozone, is voluntary to stay out of the eurozone. ERM II is a system introduced by the European Economic Community that serves to maintain currency and economic stability in Europe through various means. Norway is not a part of the European Union at all, which is why it is not in the euro-zone either.
Advantages of being a member of the eurozone
There are several advantages that being a member of the monetary union has for countries. First of all, those countries that have adopted the euro are more financially integrated with each other. This means that many financial processes are facilitated across borders. The countries that have their national currencies might not be able to enjoy the same benefits. Furthermore, the adoption of the euro offers more stability. The euro has proven to be a strong and stable currency. Its adoption would have a similar stabilizing effect on a country’s financial sector and economy. Having a common currency with the neighboring countries also has a positive effect on trade and tourism. The customers find it easier to check the prices in other locations which incentivizes them to have business dealings with those countries.
Disadvantages of being a member of the eurozone
There are some clear disadvantages of adopting the euro as well, which is why some countries have avoided joining the monetary union. The main disadvantage is the loss of the monetary policy. The monetary policy of a country is conducted by the central bank, which has the power to print and issue new currency. With the euro, this power lies with the European Central Bank, that does not always have the best interest of individual countries, but serves the union in general. Losing the control over monetary policy is a serious issue as the country will have a harder time dealing with economic crises. Furthermore, it will have no way to devalue its currency in order to increase competitiveness.
Another big disadvantage of the eurozone is that leaving it is bound to have grave consequences for the country’s economy. It was only a few years ago that there were talks of Greece being left out of the monetary union, which had a serious effect on the country’s economy and exacerbated the crisis. Leaving the eurozone could be a sign of weakness for investors and it could cause a financial crisis even in a sound economy.
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