Euro enjoys wide use outside European union

By Slobodan Lekic
Associated Press
Sunday, December 31, 2006

http://news.yahoo.com/s/ap/20061231/ap_on_bi_ge/europe_widespread_euro

Slovenia converts to the euro on Monday, officially becoming the 13th member of the eurozone -- and the first among the EU's newest members to qualify to use the currency.

But at least half a dozen other European ministates and territories are using the currency as legal tender -- without approval from the European Central Bank.

The euro was introduced five years ago to provide economic cohesion among EU nations. But euros also are in circulation in dozens of countries and overseas territories ranging from the North Atlantic to the Pacific.

In Europe, Montenegro, Vatican City, and San Marino, and the principalities of Andorra and Monaco have used the euro since its inception. And in the province of Kosovo -- technically still part of Serbia administered by the United Nations -- the euro circulates alongside the Serbian dinar.

The European Central Bank has not opposed "unilateral euroization" by microstates that historically have been linked to the French franc, Spanish peseta or German mark as legal tender.

"The ECB does not either encourage nor deter third countries from using the euro," President Jean-Claude Trichet recently declared.

Joaquin Almunia, the EU's economic and monetary affairs commissioner, has encouraged nations to adopt the euro as a means of achieving economic stability.

"The adoption of the euro creates the right conditions for economic prosperity by providing low inflation and low interest rates," he said recently.

It is not uncommon for small countries in Africa, Latin America and Asia to use the currency of a major nation -- typically, the dollar.

When newly independent East Timor adopted the dollar after seceding from Indonesia in 1999, the U.S. Treasury dispatched planeloads of paper money and tons of small-denomination coins to the impoverished Pacific nation.

However, the rise of the euro has made inroads into the dollar's international dominance.

Montenegro, for example, switched to the euro after having adopted the German mark in the 1990s.

At the time, the tiny nation -- along with Serbia -- was still part of Yugoslavia. But Montenegro opposed the hard-line policies of late Serbian strongman Slobodan Milosevic, and feared he would use his control over the Yugoslav currency to economically destabilize the small state of 600,000 people.

With Western help, the mark was introduced in Montenegro to replace the dinar. When the German mark disappeared five years ago, Montenegro adopted the euro at the same time as Germany.

The country -- which aspires to EU membership but is not even close to starting entry talks -- now relies only on euros already in circulation, said Nikola Fabris, chief economist at Montenegro's Central Bank.

"Montenegro does not have any special deal with the ECB," he said.

Kosovo -- where the ethnic Albanian majority is seeking independence for the province -- also is a "passive" member of the eurozone.

"The euro allowed Kosovo to have a stable currency and almost 0 percent inflation, and made foreign trade easier," said Mechthild Henneke, a U.N. spokeswoman.

Representation on the ECB is restricted to official EU members using the euro: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain, and now Slovenia.

Fourteen West African nations tied to the euro club through the CFA franc, a joint currency set up by France after independence in the 1960s, also are excluded from ECB representation.

Some European overseas territories are represented in the ECB decision-making process through their mother countries, including the French departments of Guadeloupe, French Guyana, Martinique and Reunion; Portugal's Madeira and Azores islands, and Spain's Canary Islands.

Dozens of other entities, including overseas territories -- such as the French islands of St. Pierre and Miquelon; Mayotte; French Polynesia; New Caledonia; and Wallis and Futuna -- are linked to the euro via peg arrangements or managed floating rates.

Slovenia becomes the first of the 10 nations -- most of them ex-communist countries -- that joined the EU in 2004 to use the euro.

Cyprus and Malta are slated to adopt the currency in 2008.

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