Sunday, May 1, 2005

Cyprus, Latvia and Malta, three states which joined the European Union in May 2004, exactly one year ago, today became members of the Exchange Rate Mechanism II (ERM II), which pegs their currencies to the euro within a 15% margin above or below a central rate. While they are in ERM II, their currencies must not fluctuate to an extent that exceeds this 15% margin, and they must also keep inflation and budget deficits in check. For countries to adopt the euro, they must stay in the ERM II for at least two years. Therefore, the earliest date that Cyprus, Latvia and Malta can adopt the common currency is in May 2007.

Cyprus, Latvia and Malta have joined four other countries already in ERM II: Denmark, Estonia, Lithuania and Slovenia. Denmark joined ERM II in 1999 but has since not wished to adopt the euro, while Estonia, Lithuania and Slovenia joined the Exchange Rate Mechanism in June 2004, and are expected to adopt the euro by late 2006 or early 2007. Other new European Union member states are also expected to join ERM II soon.

Out of the European Union of 25 member states, 12 countries currently use the euro, which they adopted in January 1, 2002. The only EU members that remain either outside the Eurozone or ERM II are the Czech Republic, Hungary, Slovakia, Sweden, Poland and the United Kingdom.