What Eurozone is and how it works

The rate that was fixed once

Council Regulation (EC) No 2866/98, done at Brussels on 31 December 1998, is short and consists mostly of a list. One euro was set at 40.3399 Belgian francs, 1.95583 German marks, 1,936.27 Italian lire, 0.787564 Irish pounds and seven other rates, each to six significant figures, and the text calls them irrevocably fixed. Nothing in the list has been reopened. The currencies stopped moving against one another on 1 January 1999, when the euro became the currency of the states adopting it and their notes and coins became denominations of it; the euro's own notes and coins were issued on 1 January 2002.

The decision behind the list came earlier. Meeting in the composition of heads of state or government on 3 May 1998, the Council confirmed that Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland fulfilled the conditions. The same day it decided that Greece did not. Greece was examined again two years later, its derogation was abrogated with effect from 1 January 2001, and a second regulation, adopted at Santa Maria da Feira on 19 June 2000, inserted a single line into the list at 340.750 drachmas. Every admission since has taken those two steps, a Council decision that the conditions are met and an amendment adding a rate, the most recent of them the lev at 1.95583 from 1 January 2026.

What the conditions are

Article 140 of the Treaty on the Functioning of the European Union requires the European Commission and the European Central Bank to report at least every two years on the states that are outside, and Protocol No 13 defines what they are reporting on. Inflation over the year before the examination must not exceed by more than one and a half percentage points that of, in the protocol's words, "at most, the three best performing Member States in terms of price stability". The long-term interest rate must sit within two percentage points of the same reference. The budgetary test is not a figure at all: it is the absence of a Council decision that an excessive deficit exists, measured against the reference values in Protocol No 12. And the currency must have held its central rate in the exchange rate mechanism, without a devaluation on the state's own initiative, for at least the two years before the examination.

Because the tests are applied on the day of the examination rather than held open, the same country can fail them and pass them. Lithuania was assessed in 2007 and turned down on the inflation criterion, and entered on 1 January 2015.

What follows a decision is administrative and it is dated. In Bulgaria, prices had to be shown in both lev and euro from 8 August 2025 until 8 August 2026, and the prices of 101 frequently purchased products were monitored daily and published through the changeover by the national consumer protection body.

Who votes on what

The European Central Bank sits in Frankfurt, and its Governing Council is an Executive Board of six together with the governor of each member country's national central bank. Once membership passed eighteen the governors stopped voting all at once. Fifteen votes now rotate among them on a calendar published a year at a time: four are shared by a first group of five countries, assembled from each country's share of euro area output and of the balance sheet of its monetary financial institutions, and eleven by the rest. The Executive Board votes in every month.

Two other bodies sit beside it. The Eurogroup, recognised in Protocol No 14, is the finance ministers of the countries whose currency is the euro meeting informally, with the Commission taking part and the central bank invited; the one formality the protocol prescribes is that they elect a president for two and a half years. The European Stability Mechanism, on a treaty signed on 2 February 2012 and seated in Luxembourg, lends to member countries on conditions agreed case by case, and a country that adopts the euro accedes to it as well.

The coinage shows the division of labour in miniature. One face of every coin is common to the whole currency, the other is national, the blanks are struck at national mints, and the volume each country may issue is approved by the central bank.

What the currency does not cover

Taxation and public spending stayed national, and so did wage bargaining. So did the greater part of banking law until 4 November 2014, when the central bank took over direct supervision of the banks it classes as significant under the Single Supervisory Mechanism. European banking supervision describes that as one of three pillars of the banking union. The second, the Single Resolution Mechanism, is in place. The third, a European deposit insurance scheme, is not, and the supervisor's own account of the arrangement says the union is still to be completed.

There is also no exit drafted. Article 140 lifts a derogation and provides nothing in the other direction, and no article of the treaties sets out how a country would return to a national currency while remaining in the Union.

Where the edges are argued

Membership here is derived rather than declared. The catalogue reads it as an EU member country whose currency is the euro, which is also how the Commission counts it, and the group has no accession treaty of its own to point at.

The currency is used in places the group does not reach. Monaco, San Marino, Vatican City and Andorra issue euro coins under monetary agreements with the Union. Montenegro and Kosovo use the currency without an agreement of any kind. None of them holds a seat on the Governing Council or a place in the Eurogroup, which is what is being counted here, and their records are filed with their own currencies noted.

On the other side, Denmark holds an opt-out written into Protocol No 16 and keeps the krone in the exchange rate mechanism at a fixed central rate. Of the remaining EU countries the Commission says only that they have yet to meet the conditions for adopting the single currency, a formula that does not separate a country preparing to adopt it from one that is not.

What the currency is next is in draft. In October 2025 the Governing Council decided that the Eurosystem would move to the next phase of the digital euro project, an electronic form of central bank money intended to sit beside notes and coins rather than replace them, and a draft of the scheme rulebook, version 0.91, was published in July 2026.