Still growing, but some growing pains

Eleven more EU countries — Malta, Cyprus, Slovakia, Estonia, Lithuania, Bulgaria, Hungary, Latvia, Czech Republic, Poland, and Romania — have committed to joining the Eurozone beginning in 2008 and ending (with Romania) in 2014.

There are certain economic requirements a country must satisfy before being allowed in the Eurozone, most having to do with deficits and national debt. Meeting these requirements has proven to be a burden for certain countries and has caused the delay of some of the newer countries’ membership.

Nonetheless, the Eurozone continues to grow, but in examining what impact the member countries might have on the euro, it’s also important to discuss who’s not in the Eurozone. The UK, Denmark, and Sweden are all members of the EU, but have not yet agreed to switch over to the euro. Switzerland has remained independent of the EU and the Eurozone.

Sweden has been the most agreeable to changing currencies, but the most recent public referendum — taken in 2003 — indicated that more than 55 percent of Swedish citizens did not want to adopt the euro. While the country is still considering a currency switch, indications are it won’t happen until the 2010 general elections at the earliest.

Unlike Sweden, Denmark and the UK have no stated intention of joining the Eurozone. As is the case with Sweden, the last public referendum in Denmark seeking opinion on the euro resulted in a majority of citizens opposing a switch.

However, whatever decision Sweden and Denmark ultimately make, their inclusion or exclusion will have minimal effect on the Eurozone economy and the value of the euro. The UK, however, is a different matter.

Besides whatever economic benefits are derived from switching to the euro, countries for the most part have done it because a single currency is helpful in creating more political integration in Europe. The UK, considering its powerful role in global politics, views any euro adoption almost entirely as an economic change, and as such has adopted rules regarding any possible elimination of the pound.

For starters, inclusion in the Eurozone would have to be approved by Parliament, the British Cabinet, and the general public via a referendum. Opinion polls taken in the UK indicate no desire by the populace to switch to the euro. Many respondents believe it is important for the UK to remain independent, both politically and economically.

Considering the UK’s lukewarm interest in adopting the euro, and the strength of the country’s currency and economy, it seems unlikely the British pound will go away any time soon.

Even more against joining the Eurozone is Switzerland, which values its independence and role as the world’s banking leader so much it has never joined the European Union. While membership in the EU is still being considered by the Swiss government, it has already been voted down by the Swiss people via referendum, and any near-term change in that scenario is unlikely.
For a more detailed look at the interplay between the euro, the British pound, and the Swiss franc, see “Comparing the major euro cross rates.”