Monday, 17 November 2008

EMU: Member States with a derogation

The march towards economic and monetary union (EMU) was planned in stages leading to the single currency, the euro. The main body of the EU member states advanced to form the Eurozone, but the United Kingdom, Denmark and Sweden remained in their winter quarters as euro outsiders.

The 2004 and 2007 EU enlargements brought twelve new members dedicated to joining the euro area. Slovenia, Cyprus and Malta have already joined the coalition headquarters, and Slovakia is going to become a euro insider 1 January 2009. The rest are in various stages of preparation, but they still have their national currencies.

The Treaty of Lisbon would simplify the treaties by abolishing redundant provisions on the march route, and it would clarify the relations between the euro area insiders and the outsiders, known as member states with a derogation.

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Current treaty

The current Treaty establishing the European Community (TEC) sets out Transitional provisions in Chapter 4 of Title VII Economic and monetary policy, in Part Three Community policies (in the latest codified version of the treaties, Official Journal 29.12.2006 C 321 E/93─101).

Chapter 4 Transitional provisions contains Articles 116 to 124 TEC.

Member states with a derogation and member states without a derogation are defined in Article 122 TEC (ex Article 109k):



Article 122 TEC

1. If the decision has been taken to set the date in accordance with Article 121(3), the Council shall, on the basis of its recommendations referred to in Article 121(2), acting by a qualified majority on a recommendation from the Commission, decide whether any, and if so which, Member States shall have a derogation as defined in paragraph 3 of this Article. Such Member States shall in this Treaty be referred to as ‘Member States with a derogation’.

If the Council has confirmed which Member States fulfil the necessary conditions for the adoption of a single currency, in accordance with Article 121(4), those Member States which do not fulfil the conditions shall have a derogation as defined in paragraph 3 of this Article. Such Member States shall in this Treaty be referred to as ‘Member States with a derogation’.

2. At least once every two years, or at the request of a Member State with a derogation, the Commission and the ECB shall report to the Council in accordance with the procedure laid down in Article 121(1). After consulting the European Parliament and after discussion in the Council, meeting in the composition of the Heads of State or Government, the Council shall, acting by a qualified majority on a proposal from the Commission, decide which Member States with a derogation fulfil the necessary conditions on the basis of the criteria set out in Article 121(1), and abrogate the derogations of the Member States concerned.

3. A derogation referred to in paragraph 1 shall entail that the following articles do not apply to the Member State concerned: Articles 104(9) and (11), 105(1), (2), (3) and (5), 106, 110, 111, and 112(2)(b). The exclusion of such a Member State and its national central bank from rights and obligations within the ESCB is laid down in Chapter IX of the Statute of the ESCB.

4. In Articles 105(1), (2) and (3), 106, 110, 111 and 112(2)(b), ‘Member States’ shall be read as ‘Member States without a derogation’.

5. The voting rights of Member States with a derogation shall be suspended for the Council decisions referred to in the articles of this Treaty mentioned in paragraph 3. In that case, by way of derogation from Articles 205 and 250(1), a qualified majority shall be defined as two thirds of the votes of the representatives of the Member States without a derogation weighted in accordance with Article 205(2), and unanimity of those Member States shall be required for an act requiring unanimity.

6. Articles 119 and 120 shall continue to apply to a Member State with a derogation.


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Draft Constitution

The euro currency had been introduced, and the euro banknotes and coins were in circulation, when the European Convention deliberated institutional reform of the European Union. It is hardly surprising that the Convention proposed a reworked section with the aim to simplify and to clarify the transitional provisions.

Section 4 Transitional provisions comprises Articles III-91 to III-96 of the draft Constitution (OJ 18.7.2003 C 169/45─46):

SECTION 4
Transitional provisions

Article III-91 Draft Constitution

1. Member States which the Council of Ministers has decided do not fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as ‘Member States with a derogation’.

2. The following provisions of the Constitution shall not apply to Member States with a derogation:

(a) adoption of the parts of the broad economic-policy guidelines which concern the euro area generally (Article III-71(2));

(b) coercive means of remedying excessive deficits (Article III-76(9) and (10));

(c) the objectives and tasks of the European System of Central Banks (Article III-77(1), (2), (3) and (5));

(d) issue of the euro (Article III-78);

(e) acts of the European Central Bank (Article III-82);

(f) measures governing the use of the euro (Article III-83);

(g) monetary agreements and other measures relating to exchange-rate policy (Article III-228);

(h) appointment of members of the Executive Board of the European Central Bank (Article III-84(2)(b)).

In the Articles referred to above, ‘Member States’ shall therefore mean Member States without a derogation.

3. Under Chapter IX of the Statute of the European System of Central Banks and the European Central Bank, Member States with a derogation and their national central banks are excluded from rights and obligations within the European System of Central Banks.

4. The voting rights of members of the Council of Ministers representing Member States with a derogation shall be suspended for the adoption by the Council of Ministers of the measures referred to in the Articles listed in paragraph 2. A qualified majority shall be defined as a majority of the votes of the representatives of the Member States without a derogation, representing at least three fifths of their population. Unanimity of those Member States shall be required for any act requiring unanimity.


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Finland

The Finnish government reported on the results of the European Convention in Valtioneuvoston selonteko Eduskunnalle konventin tuloksista ja valmistautumisesta hallitusten väliseen konferenssiin (VNS 2/2003 vp), but the section on economic and monetary policy (8.5 Talous. ja rahapolitiikka) on pages 65 to 67 did not waste words on matters as arcane a simplification and clarification.

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Sweden

Ahead of the intergovernmental conference, the Swedish government presented its views in Regeringens skrivelse 2003/04:13 Europeiska konventet om EU:s framtid (2 October 2003). Non-euro Sweden was fairly supportive of effective decision-making in the eurozone and international representation for the euro area in international financial institutions (page 49─50), but mere simplification and clarification did not merit comments from the government.

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de Poncins


Étienne de Poncins expressed a few thoughts on the meaning and structure of Article III-91 in Vers une Constitution européenne (Éditions 10/18, 2003), pages 312 and 313:

« Commentaire : cet article précise les cas dans lesquels les États membres de la zone euro prennent part seuls au vote au sein du Conseil mais en présence de l’ensemble des États membres. Comme dans les traités actuels, le fait pour un État membre de ne pas faire partie de la zone euro est considéré comme une « dérogation » par rapport à la règle commune. Cela explique la structure générale de cet article.

Les États membres de la zone euro auraient souhaité que la liste figurant au paragraphe 2 soit étendue s’agissant des alinéas a) et b). La Convention a privilégié l’insertion d’un article III-88 (cf. commentaire sous cet article). Satisfaction leur a toutefois été donnée sur un point : celui relatif à l’adoption des grandes orientations des politiques économiques de la zone eurod’une façon générale (mais non sur celles relative à chaque État membre de la zone euro).

La Conférence intergouvernementale pourrait reprendre le débat. »

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Constitutional Treaty

The corresponding provisions of the intergovernmental conference (IGC 2004) are found in Section 5 Transitional provisions, comprising Articles III-197 to 202 of the Treaty establishing a Constitution for Europe (OJ 16.12.2004 C 310/86─90).

Article III-197 Constitution

1. Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as ‘Member States with a derogation’.

2. The following provisions of the Constitution shall not apply to Member States with a derogation:

(a) adoption of the parts of the broad economic policy guidelines which concern the euro area generally (Article III-179(2));

(b) coercive means of remedying excessive deficits (Article III-184(9) and (10));

(c) the objectives and tasks of the European System of Central Banks (Article III-185(1), (2), (3) and (5));

(d) issue of the euro (Article III-186);

(e) acts of the European Central Bank (Article III-190);

(f) measures governing the use of the euro (Article III-191);

(g) monetary agreements and other measures relating to exchange-rate policy (Article III-326);

(h) appointment of members of the Executive Board of the European Central Bank (Article III-382(2));

(i) European decisions establishing common positions on issues of particular relevance for economic and monetary union within the competent international financial institutions and conferences (Article III-196(1));

(j) measures to ensure unified representation within the international financial institutions and conferences (Article III-196(2)).

In the Articles referred to in points (a) to (j), ‘Member States’ shall therefore mean Member States whose currency is the euro.

3. Under Chapter IX of the Statute of the European System of Central Banks and of the European Central Bank, Member States with a derogation and their national central banks are excluded from rights and obligations within the European System of Central Banks.

4. The voting rights of members of the Council representing Member States with a derogation shall be suspended for the adoption by the Council of the measures referred to in the Articles listed in paragraph 2, and in the following instances:

(a) recommendations made to those Member States whose currency is the euro in the framework of multilateral surveillance, including on stability programmes and warnings (Article III-179(4));

(b) measures relating to excessive deficits concerning those Member States whose currency is the euro (Article III-184(6), (7), (8) and (11)).

A qualified majority shall be defined as at least 55 % of the other members of the Council, representing Member States comprising at least 65 % of the population of the participating Member States.

A blocking minority must include at least the minimum number of these other Council members representing more than 35 % of the population of the participating Member States, plus one member, failing which the qualified majority shall be deemed attained.


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There are both great similarities and some differences between Article III-91 of the draft Constitution and Article III-197 of the Constitutional Treaty.

Let us see it our standard references contribute anything towards our understanding of the provision.

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Sweden

The government of Sweden, still outside the eurozone, described the new definition of qualified majority voting concerning a number of provisions, among them Article III-197(4), in the draft ratification bill, Lagrådsremiss Fördraget om upprättande av en konstitution för Europa (2 June 2005), page 173─174:


”I ett flertal fall på detta område skall rådet fatta beslut med kvalificerad majoritet enligt den nya definition av detta begrepp som det konstitutionella fördraget innehåller. Det rör sig om rådsbeslut om rekommendationer till en medlemsstat som för en politik som inte är förenlig med de allmänna riktlinjerna eller har ett alltför stort underskott (artikel III-179.4, artikel III-184.6 och 7), rådsbeslut om antagande av landsspecifika riktlinjer (artikel III-194.2), rådsbeslut om åtgärder för att säkerställa ett enat externt handlande (artikel III-196.3) och olika rådsbeslut som rör de s.k. medlemsstaterna med undantag (artikel III-197.4 och III-198.2). Enligt de övergångsbestämmelser som finns i artikel 2.4 i protokollet om övergångsbestämmelser för unionens institutioner och organ skall den nya definitionen av kvalificerad majoritet i dessa artiklar dock få verkan först den 1 november 2009.”

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Finland

In Finland, the government’s ratification bill, Hallituksen esitys Eduskunnalle Euroopan perustuslaista tehdyn sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta (HE 67/2006 vp) did not ponder the differences between the draft Constitution and the Constitutional Treaty, but it compared the Section on transitional provisions and Article III-197 in some detail with the current TEC, on pages 184 and 185.

The Chapter on transitional provisions had been shortened, because some of these provisions concerned competence to take certain measures, such as establishing the European Central Bank. Since these action have already been taken, the provisions have been abolished as redundant. The rest of the provisional provisions apply to countries, which have not adopted the euro, but are preparing for adoption.

Article III-197 of the Constitution corresponds with paragraphs one, two and three of Article 122 TEC.

In Constitution Article III-197(2), the non-application of Articles III-179(2), III-191 and III-196(1) to members with a derogation has been added.

Further additions of non-application are mentioned in paragraph 4. The new definition of a qualified majority has been explained in the context of Article III-179:

”5 jakso
Siirtymämääräykset

Siirtymämääräyksiä koskevaa lukua on lyhennetty aiempaan perustamissopimukseen verrattuna. Tämä johtuu siitä, että osa perustamissopimukseen sisällytetyistä siirtymämääräyksistä koski toimivaltamääräyksiä ryhtyä tiettyihin toimenpiteisiin, kuten esimerkiksi Euroopan keskuspankin perustamiseen. Koska kyseiset toimenpiteet on jo suoritettu, vastaavat toimivaltamääräykset on poistettu tarpeettomina. Kaikki jäljellä olevat siirtymäsäännökset koskevat sellaisia maita, jotka eivät ole vielä ottaneet euroa käyttöön, mutta ovat kuitenkin valmistautumassa siihen.

III-197 artikla, jossa määrätään, mitä artikloita ei sovelleta niihin jäsenvaltioihin, jotka eivät ole täyttäneet euron käyttöön ottamiseksi vaadittavia edellytyksiä, vastaa SEY 122 artiklan ensimmäistä, kolmatta ja viidettä kohtaa.

Artiklan 2 kohdan mukaan aiempien rajausten lisäksi kyseisiin jäsenvaltioihin ei sovelleta myöskään III-179 artiklan toista kohtaa, III-191 artiklaa eikä III-196 artiklan ensimmäistä kohtaa.

Artiklan 4 kohdassa on äänestysmääräykset muutettu siten ettei kyseisillä jäsenvaltioilla ole äänioikeutta III-179 artiklan 4 kohdan eikä III-184 artiklan 6,7,8 ja 11 kohdissa tarkoitetussa päätöksenteossa. Päätöksenteossa sovelletaan uutta määräenemmistön määritelmää, joka on selostettu III-179 artiklan yhteydessä.”

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Original Lisbon Treaty

In Article 2, point 101, of the original Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) adopted the substance of the Constitution’s proposal under a clarifying headline relating to member states with a derogation (OJ 17.12.2007 C 306/76─77):

TRANSITIONAL PROVISIONS RELATING TO MEMBER STATES WITH A DEROGATION

101) Article 116 shall be repealed, and the following Article 116a shall be inserted:

‘Article 116a TFEU (ToL)

1. Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as “Member States with a derogation”.

2. The following provisions of the Treaties shall not apply to Member States with a derogation:

(a) adoption of the parts of the broad economic policy guidelines which concern the euro area generally (Article 99(2));

(b) coercive means of remedying excessive deficits (Article 104(9) and (11));

(c) the objectives and tasks of the ESCB (Article 105(1), (2), (3) and (5));

(d) issue of the euro (Article 106);

(e) acts of the European Central Bank (Article 110);

(f) measures governing the use of the euro (Article 111a);

(g) monetary agreements and other measures relating to exchange-rate policy (Article 188 O);

(h) appointment of members of the Executive Board of the European Central Bank (Article 245b(2));

(i) decisions establishing common positions on issues of particular relevance for economic and monetary union within the competent international financial institutions and conferences (Article 115 C(1));

(j) measures to ensure unified representation within the international financial institutions and conferences (Article 115 C(2)).

In the Articles referred to in points (a) to (j), “Member States” shall therefore mean Member States whose currency is the euro.

3. Under Chapter IX of the Statute of the ESCB and of the ECB, Member States with a derogation and their national central banks are excluded from rights and obligations within the SCB.

4. The voting rights of members of the Council representing Member States with a derogation shall be suspended for the adoption by the Council of the measures referred to in the Articles listed in paragraph 2, and in the following instances:

(a) recommendations made to those Member States whose currency is the euro in the framework of multilateral surveillance, including on stability programmes and warnings (Article 99(4));

(b) measures relating to excessive deficits concerning those Member States whose currency is the euro (Article 104(6), (7), (8), (12) and (13)).

A qualified majority of the other members of the Council shall be defined in accordance with
Article 205(3)(a).’.

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Renumbering

The Treaty on the Functioning of the European Union (TFEU) table of equivalences confirms that the new Article 116a TFEU (ToL) in the original Treaty of Lisbon was to be renumbered Article 139 TFEU in the consolidated version, under the title ‘Economic and monetary policy’, renumbered Title VIII, and in the renumbered Chapter 5 ‘Transitional provisions’ (OJ 17.12.2007 C 306/215).

(In the consolidated version of the Lisbon Treaty, OJ 9.5.2008 C 115, the Tables of equivalences start on page 361, but the ToL numbers have been omitted.)

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Consolidated Lisbon Treaty: TFEU

Article 139 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/107─108:

Part Three Union policies and internal actions

Title VIII Economic and monetary policy

CHAPTER 5
TRANSITIONAL PROVISIONS

Article 139 TFEU

1. Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall hereinafter be referred to as ‘Member States with a derogation’.

2. The following provisions of the Treaties shall not apply to Member States with a derogation:

(a) adoption of the parts of the broad economic policy guidelines which concern the euro area generally (Article 121(2));

(b) coercive means of remedying excessive deficits (Article 126(9) and (11));

(c) the objectives and tasks of the ESCB (Article 127(1) to (3) and (5));

(d) issue of the euro (Article 128);

(e) acts of the European Central Bank (Article 132);
(f) measures governing the use of the euro (Article 133);

(g) monetary agreements and other measures relating to exchange-rate policy (Article 219);

(h) appointment of members of the Executive Board of the European Central Bank (Article 283(2));

(i) decisions establishing common positions on issues of particular relevance for economic and monetary union within the competent international financial institutions and conferences (Article 138(1));

(j) measures to ensure unified representation within the international financial institutions and conferences (Article 138(2)).

In the Articles referred to in points (a) to (j), ‘Member States’ shall therefore mean Member States whose currency is the euro.

3. Under Chapter IX of the Statute of the ESCB and of the ECB, Member States with a derogation and their national central banks are excluded from rights and obligations within the ESCB.

4. The voting rights of members of the Council representing Member States with a derogation shall be suspended for the adoption by the Council of the measures referred to in the Articles listed in paragraph 2, and in the following instances:

(a) recommendations made to those Member States whose currency is the euro in the framework of multilateral surveillance, including on stability programmes and warnings (Article 121(4));

(b) measures relating to excessive deficits concerning those Member States whose currency is the euro (Article 126(6), (7), (8), (12) and (13)).

A qualified majority of the other members of the Council shall be defined in accordance with Article 238(3)(a).

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Sweden

The Lisbon Treaty ratification bill of the Swedish government, Regeringens proposition 2007/08:168 Lissabonfördraget (3 July 2008), on page 185, mentions the Article 116a in the same terms as the corresponding Article of the Constitutional Treaty, so it does not go into fine detail:

”I ett flertal fall på området ekonomisk och monetär politik ska rådet fatta beslut med kvalificerad majoritet enligt den nya definition av detta begrepp som införs genom Lissabonfördraget (se även avsnitt 14.4). Det rör sig bl.a. om rådsbeslut om rekommendationer till en medlemsstat som för en politik som inte är förenlig med de allmänna riktlinjerna eller har ett alltför stort underskott (artiklarna 99.4 104.6 och 104.7 i EUF-fördraget), rådsbeslut om antagande av landsspecifika riktlinjer (artikel 115a.1b i EUF-fördraget), rådsbeslut om åtgärder för att säkerställa ett enat externt handlande (artikel 115c.2 i EUF-fördraget) och olika rådsbeslut som rör de s.k. medlemsstaterna med undantag (artiklarna 116a.4 och 117a.2 i EUF-fördraget). Särskilda övergångsbestämmelser när det gäller omröstning i rådet enligt artikel 205.3 i EUF-fördraget finns i artikel 3.4 i ett protokoll om övergångsbestämmelser som fogas till EU-fördraget, EUF-fördraget och Euratomfördraget.”


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Priollaud and Siritzky

In ‘Le traité de Lisbonne ; Commentaire, article par article, des nouveaux traités européens (TUE et TFUE)’ (La Documentation Française, 2008), François-Xavier Priollaud and David Siritzky present the Lisbon Treaty provisions of Chapter 5 (Dispositions transitoires) on page 260 to 261. Their first paragraph manages to present the essence in three sentences:

« Ces dispositions transitoires sont celles applicables aux États membres bénéficiant d’une dérogation, c’est’à-dire des pays dont l’euro n’est pas encore la monnaie. Elle reprend les art. 116 à 124 TCE, en les simplifiant. Toutes les dispositions relative aux première et deuxième phases, devenues obsolètes, ont été supprimées. »

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United Kingdom FCO

‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon (Cm 7311, 21 January 2008) offers the following comment on Article 139 TFEU (on page 13):

“Draws on Article 122 TEC. Sets out position of “Member States with a derogation”.”

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UK House of Commons Library

The UK House of Commons Library presented the amending treaty in ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Communities’ (Research paper 07/86, 6 December 2007. There was a lengthy explanation of Article 116a TFEU (ToL) and the other transitional provisions), on page 63 and 64:

“Article 116a sets out the arrangements for Member States “with a derogation”. While the article has appears to have changed substantially from the original article, the content for the most part is the same and has been re-arranged or re-worded. The article sets out areas of the Treaty which do not apply to Member States with a derogation, including the following areas which are unchanged from the existing treaty:

· Adoption of broad economic policy guidelines concerning the euro area;
· Coercive means of remedying excessive deficits;
· The objectives and tasks of the European System of Central Banks;
· The issue of the euro and measures governing the use of the euro;
· Acts of the European Central Bank (ECB) and appointments to the Executive Board of the ECB;
· Monetary agreements and other measures relating to exchange rate policy; and,
· Exclusion from rights and obligations relating to the European System of Central Banks.

Two additional areas are covered by the Treaty in this article which are not in previous treaties: decisions establishing common positions relevant to EMU within international financial institutions and conferences and measures to ensure unified representation within international financial institutions and conferences (See Article 115A). Neither of these areas applies to Member States with a derogation.

A new provision is that the voting rights of Member States with a derogation are suspended in two areas:

· Recommendations to Member States within the euro area on the framework of multilateral surveillance, including stability programmes and warnings; and,
· All measures relating to excessive deficits for Member States whose currency is the euro.

Articles 116a–120 (Constitution Articles Article III-197 - 202) concern transitional provisions regarding the single currency. Article 116a (Constitution Article III-197) sets out the arrangements for Member States “with a derogation”. This has changed substantially in format but the content has been for the most part simply re-arranged. Article 116a and Article 99(2), which cover the adoption of broad economic guidelines in the euro area, does not apply to Member States with a derogation. Article 116a(4) has been altered to include two further areas where Member States with a derogation cannot vote:

· recommendations made to those Member States whose currency is the euro in the framework of multilateral surveillance, including on stability programmes and warnings
· measures relating to excessive deficits concerning those Member States whose currency is the euro.

While the IGC did not agree on a new Stability and Growth Pact, a Conference Declaration regarding the Pact was annexed to the Treaty (“Declaration on Article 104 of the Treaty on the Functioning of the European Union”), in which the Conference confirms that the Pact is an “important tool” in the Union’s economic and fiscal policy and “reaffirms its commitment to the provisions concerning the Stability and Growth Pact as the framework for the coordination of budgetary policies in the Member States”.”

[I have deleted the footnotes, which can be found in the original.]

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The willing and able EU member states have the rights and obligations of the Eurozone, whereas the outsiders are excluded from the enumerated decisions concerning the euro area and the European system of Central Banks (ESCB).

The financial turbulence and the economic downturn seem to have lessened the attraction of being an outsider, but to adopt the euro a member state has to qualify.


Ralf Grahn