Greece joins eurozone

The Greek drachma will be in circulation for just one more year

Greece has become the twelfth country to join the European single currency, ditching its own currency, the drachma.

The Greek Finance Minister, Ioannis Papandoniou, described it has an historic day that would place Greece firmly at the heart of Europe.

Our inclusion in EMU ensures for us greater stability and opens up new horizons

Costas Simitis

But the president of the European Central Bank, Wim Duisenberg, warned that Greece still had a lot of work to do to improve its economy and bring inflation under control.

In 1999, Greece was left out of the eurozone for failing to meet the EU's economic criteria.

To qualify for euro membership, the Greek Government had to adopt a tough austerity programme, making deep cuts in public spending.

Popular move

Despite the budget cuts, euro membership is hugely popular in Greece, with polls suggesting that nearly two-thirds of the population are in favour of the move.

Greece

Population: 10.6m

GDP: $137bn

GDP per head: $13,064

Unemployment: 10.3%

Inflation: 4%

Exports within EU (as % of total national exports): 46.2

In a televised New Year message, Prime Minister Costas Simitis said Greece "is already experiencing euro conditions".

"We all know that our inclusion in EMU (European Monetary Union) ensures for us greater stability and opens up new horizons," he said.

The eurozone now consists of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Denmark, Sweden and the United Kingdom are the only European Union members outside the eurozone.

The monetary union is deeply unpopular with voters in all three countries.

Investors worried

Some investors have said they are worried the decision to allow Greece to join the euro will send out the wrong signal to financial markets - suggesting that in future other, weaker economies may be allowed in without complying fully with membership conditions.

The drachma dates back to antiquity, but most Greeks prefer the euro

Greece has one of the highest inflation rates in Europe. Public sector borrowing is also much higher than would be permitted normally under the EU rules governing entry to the project.

Greece had hoped to join the euro with the first wave of member countries in January 1999, but failed to meet the economic tests of low inflation and government debt and deficits - the so-called Maastricht criteria.

For the first year, joining the euro will not make much difference in the lives of most Greeks.

The value of their currency will be locked in at a fixed exchange rate to the euro.

Share prices will be quoted in euros, but consumers will continue to use drachmas for money transactions.

Like all other countries in the eurozone, Greece will introduce euro notes and coins in January 2002.

Economic impact

For the eurozone as a whole, Greek membership will not make a huge difference.

The eurozone will encompass another 10.6m inhabitants, turning it into a currency zone for 302m people. Its gross domestic product will grow by just 2%.

Politically, though, it sends an important signal to the 12 countries queuing to join the EU.

They have seen the tough decisions they have to make in order to qualify for EU and euro membership. At the same time, it shows that the EU decision makers can be somewhat lenient towards aspiring euro countries.