"Towards a Stronger Euro: EMU Enlargement and Euroization (vs. Dollarization)"

Viterbo, Annamaria. (2007) "Towards a Stronger Euro: EMU Enlargement and Euroization (vs. Dollarization)". In: UNSPECIFIED, Montreal, Canada. (Unpublished)

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Abstract

Since its introduction in 2002, the euro has enjoyed an increasingly important role in international monetary relations. This is due to the fact that the euro is issued by one of the world’s leading economic and trading powers. Moreover, the expectation that the euroarea will enjoy low inflation rates in the long term increases confidence in the European currency. The euro is becoming a competitor to the US dollar as “the international currency”. It might even overtake the American currency – as many economists predict – in case of a weak US macroeconomic policy performance, as well as depending on how the euro establishes itself in international financial markets, and – last but not least – on how many (and how rapidly) new EC Members will join the euro, making the euroarea economy larger than the US one. The main purpose of this paper is to analyze the eurozone enlargement from a legal point of view. This enlargement can take place either with the consent of the European Community or unilaterally. In fact, the euro can be adopted by a EC Member State, respecting the Maastricht convergence criteria, or by third States through the execution of international monetary treaties (e.g. San Marino, the Vatican, Monaco). Otherwise, the euro can be adopted “unilaterally” by third (non-European) States by conferring it legal tender status with an internal act. This last solution shall be considered legitimate from an international law point of view. This paper is structured in three sections. The first section is devoted to the enlargement of the European Monetary Union. Particular attention is given to the legal issues arising from the participation of the new EC Member States in the Exchange Rate Mechanism 2 (ERM2). This analysis is of fundamental importance, because participation in the ERM2 is necessary to meet the exchange rate stability convergence criterion that non-euro EC Members should comply with in order to adopt the single currency. The second section investigates on what legal grounds the Community can negotiate bilateral monetary agreements, with the goal of a consensual introduction of the euro in the counterpart State. This method has mainly been used with European micro-States. The last section aims at evaluating if, under an international law point of view, third States can legitimately “euroize”. While the position of the European Community on the euroization of non-European countries may be deemed neutral, the Community has actively discouraged the unilateral adoption of the euro by States of the European region eligible for EC membership. In fact, prospective accession countries should not unilaterally confer the euro legal tender status bypassing the convergence process foreseen by the EC Treaty. Eventually, a comparison between the EC policy and the US policy on official euroization/dollarization is offered. It is not the aim of this paper to discuss why countries should decide to adopt a foreign currency, nor to consider the pros and cons of euroization/dollarization.

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