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Eurozone

What is the Eurozone?

  • The Eurozone, also called the euro area, is a currency union of European Union member states that have adopted the euro (€) as their official legal tender.
  • It represents the monetary pillar of the EU’s Economic and Monetary Union (EMU).
  • Member states surrender independent monetary policy in favour of a single monetary authority.

Membership

  • Total members: 21 countries
  • Latest member: Bulgaria (2026)
  • EU members not using the euro: Czech Republic, Denmark, Hungary, Poland, Romania, Sweden
    • Most are legally obliged to adopt the euro in the future, except Denmark which has a formal opt-out.

Historical Background

  • Maastricht Treaty (1992):
    • Laid the foundation for the European Union and the Economic and Monetary Union (EMU).
    • Established convergence criteria for adopting a common currency.
  • Euro launch:
    • Introduced for electronic transactions in 1999.
    • Euro notes and coins entered circulation in 2002.

Institutional Framework

  • Monetary authority: Managed by the Eurosystem
    • Consists of the ECB and national central banks of Eurozone countries.
  • Policy objective: Maintain price stability across the euro area.
  • ECB Governing Council: Main decision-making body for monetary policy.
  • Eurogroup: Informal forum of finance ministers of Eurozone countries coordinating fiscal and economic policies.
  • European Stability Mechanism (ESM):
    • Permanent crisis-resolution mechanism established in 2012.
    • Provides financial assistance to Eurozone countries facing severe economic distress.

Criteria for Joining the Eurozone (Maastricht Criteria)

  • Price stability: Inflation rate not more than 1.5 percentage points above the average of the three best-performing EU states.
  • Fiscal discipline (deficit): Government deficit should be below 3% of GDP or moving decisively towards it.
  • Fiscal discipline (debt): Public debt should be below 60% of GDP or declining at a satisfactory pace.
  • Exchange rate stability: Participation in ERM II for at least two years without major currency fluctuations or devaluation.

Significance

  • Facilitates economic integration, trade efficiency, and price transparency among member states.
  • Enhances financial stability through common monetary policy and crisis-support mechanisms.
  • Strengthens the EU’s role as a global economic and financial actor.

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The UPSC Civil Services Examination (CSE) is one of the most competitive and esteemed examinations in India, conducted by the Union Public Service Commission to recruit officers for services such as the Indian Administrative Service (IAS), Indian Police Service (IPS), Indian Foreign Service (IFS), and others. The exam comprises three stages — Prelims, Mains, and the Personality Test (Interview) — designed to test a candidate’s knowledge, aptitude, decision-making, and leadership skills.

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