Changes

===Fiscal and Monetary Policy===

===Fiscal and Monetary Policy===

Introduced in 1999, the euro is currently the official currency of fifteen of the 28 EU member states. The United Kingdom, Denmark and Sweden chose to retain their national currencies, and some of the newer EU members have yet to meet the strict economic conditions required to adopt the euro. Prior to the euro's launch in 1999, national currency exchange rates of countries intending to join the euro were fixed within an Exchange Rate Mechanism. Following the January 2002 introduction of euro notes and coins into general circulation, national currencies were removed from circulation. Each of the euro area countries agreed to abide by a shared fiscal policy rule book known as the Stability and Growth Pact (SGP). This agreement generally obliges national governments to limit government budget deficits to 3 percent of GDP and established a target debt-to-GDP ratio of below sixty percent. Although enforcement actions have been forgiving – France and Germany, for example, avoided sanctions despite missing SGP targets – countries violating the SGP are technically subject to sanctions by the European Commission. As of March 2005, national governments have been granted budget leeway to achieve structural reforms and to combat prolonged stagnation, negative growth or other factors, such as the cost of German reunification or state pensions. The revised standards still require deficits to remain close to the targets; they may only temporarily exceed the three percent limit.

Introduced in 1999, the euro is currently the official currency of fifteen of the 27 EU member states. Denmark and Sweden chose to retain their national currencies, and some of the newer EU members have yet to meet the strict economic conditions required to adopt the euro. Prior to the euro's launch in 1999, national currency exchange rates of countries intending to join the euro were fixed within an Exchange Rate Mechanism. Following the January 2002 introduction of euro notes and coins into general circulation, national currencies were removed from circulation. Each of the euro area countries agreed to abide by a shared fiscal policy rule book known as the Stability and Growth Pact (SGP). This agreement generally obliges national governments to limit government budget deficits to 3 percent of GDP and established a target debt-to-GDP ratio of below sixty percent. Although enforcement actions have been forgiving – France and Germany, for example, avoided sanctions despite missing SGP targets – countries violating the SGP are technically subject to sanctions by the European Commission. As of March 2005, national governments have been granted budget leeway to achieve structural reforms and to combat prolonged stagnation, negative growth or other factors, such as the cost of German reunification or state pensions. The revised standards still require deficits to remain close to the targets; they may only temporarily exceed the three percent limit.

The euro area's monetary policy is set by the European Central Bank (ECB), which must devise a monetary policy to accommodate a wide range of domestic policies and economic conditions within the euro area. The Treaties require that the ECB's primary objective be to maintain price stability (i.e., to keep inflation low). Euro area national governments have sometimes criticised the ECB for guarding against inflation at the expense of interest rate flexibility that could enable struggling economies to gain traction. The ECB's consistent overnight interest rate of two percent has been credited with creating favourable conditions for growth in Spain and Ireland, but has been blamed for hindering growth in France, Germany, Italy, and Portugal. Non-EU countries have also adopted the euro, including Andorra, United Kingdom base areas, Kosovo, Monaco, Montenegro, and the Vatican City. Additionally, several countries have currencies pegged to the euro, including French African states and those in the Exchange Rate Mechanism.

The euro area's monetary policy is set by the European Central Bank (ECB), which must devise a monetary policy to accommodate a wide range of domestic policies and economic conditions within the euro area. The Treaties require that the ECB's primary objective be to maintain price stability (i.e., to keep inflation low). Euro area national governments have sometimes criticised the ECB for guarding against inflation at the expense of interest rate flexibility that could enable struggling economies to gain traction. The ECB's consistent overnight interest rate of two percent has been credited with creating favourable conditions for growth in Spain and Ireland, but has been blamed for hindering growth in France, Germany, Italy, and Portugal. Non-EU countries have also adopted the euro, including Andorra, United Kingdom base areas, Kosovo, Monaco, Montenegro, and the Vatican City. Additionally, several countries have currencies pegged to the euro, including French African states and those in the Exchange Rate Mechanism.