Eurozone

What is the 'Eurozone'

The eurozone is a geographic and economic region that consists of all the European Union (EU) countries that have fully incorporated the euro as their national currency.

As of 2018, the eurozone consisted of 19 countries in the EU: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherands, Portugal, Slovakia, Slovenia and Spain. 

BREAKING DOWN 'Eurozone'

The eurozone is one of the largest economic regions in the world and its currency, the euro, is considered one of the most liquid when compared to others. This region's currency continues to develop over time and is taking a more prominent position in the reserves of many central banks.

History of the Eurozone

In 1992, the countries making up the European Community (EC) signed the Maastricht Treaty, thereby creating the EU. The creation of the EU had a few areas of major impact—it promoted greater coordination and cooperation in policy, broadly speaking, but it had specific effects on citizenship, security and defense policy, and economic policy. 

Regarding economic policy, the Maastricht Treaty aimed to create a common economic and monetary union, with a central banking system (the European Central Bank (ECB)) and a common currency (the euro).

In order to do this, the treaty called for the free movement of capital between the member states, which then graduated into increased cooperation between national central banks and the increased alignment of economic policy among member states. The final step was the introduction of the euro itself, along with the implementation of a singular monetary policy, coming from the ECB.

It also introduced convergence criteria, or requirements that countries must meet in order to use the euro as currency. 

According to CNN, these include

1) limitations for budget deficits and public debt,

2) exchange rate stability,

3) inflation rates within 1.5% of 3 EU countries with the lowest rate, and 

4) long term interest rates within 2% of the three lowest rates in the EU.