Bulgaria Croatia Czech Republic Hungary Latvia Lithuania Poland Romania have an obligation to join Eurozone when they are ready Fiscal and monetary policies fiscal policy budget taxation and spending monetary policy interest rates exchange rates money supply the two are coordinated to achieve economic growth 17 EU member states have common monetary policy one common currency managed by one central bank one single set of interest rates member states responsible for fiscal policies group of 17 countries that have adopted Euro as common currency 17 fiscal policies Eurozone who is out UK Denmark Sweden opted out Optimum Currency Area economic theory adoption of a common currency by multiple countries requires a degree of economic convergence comparable economies Treaty of Maastricht mandated creation of a common currency set out the road of Economic and Monetary Union EMU three stage approach economic convergence deadline January 1 1999 only ready member states would participate the rest would join when ready Euro coins and notes started circulating on January 1 2002 phased withdrawal of national currencies January 1 February 28 2002 both Euro and national currencies were legal tender March 20002 national currencies lost status of legal tender Old currencies could be exchanged for Euros even after that date all look the same in every country of Eurozone Euro notes Euro coins one common side managing the Euro one national side different for each Eurozone member European Central Bank is responsible for single monetary policy issues the Euro manages Euro exchange rate sets interest rates in the Eurozone ECB facts Independent of political influence Most independent central bank Member states and other EU institutions no influence on its decisions The center of the European system of central banks ESCB National central banks became branches of the ECB When interest rates are low people borrow and spend more money Inflation rate goes down When interest rates are high inflation rates go down The stability and growth pact Law and the EU Every member state of the eu NEEDS TO MANAGE EXTREMES OF REVENUE AND EXPENDITURE SO THAT THE DEBT IT HAS IS 60 OF ITS GDP cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 Coordinates fiscal polcies of 17 eurozone countries Restrictions on fiscal discipline Low public debt 60 of GDP Low budget deficit 3 gdp Excessive deficit procedure no bailout clause If a country breaks the rules and its budget deficit up there would be a sanction exposed on that member state They would be penalized for breaking those rules Supposed to act as a deterrent for the country so they would be scared and make sure not to do it no resources to pay for higher deficits other members of Eurozone should not bail them out included in stability and growth oact by germany germany did not want to bail out countries that spent more than they should The stability and growth pact reflects need to coordinate monetary and fiscal policy reason fiscal instability puts pressure on the value of the Euro cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127