In addtion to the things that other commenters have mentioned, there is one more difference between having your currency pegged to the Euro and being a Euro country: when goods are traded between two Euro countries, these goods aren't really paid for. Instead, the sale is transacted through the so-called TARGET2 system. Wikipedia describes it like this:
A Dutch importer, for example, might place an order with a Spanish company. Payments to and from the accounts of the buyer and seller are channeled via central banks, so the Spanish exporter's bank gets a credit with the Banco de España, which in turn has a claim on the ECB. The Dutch importer's bank owes its local central bank, leaving De Nederlandsche Bank with a debit at the ECB.
The idea behind this was that the liabilities within the TARGET2 system would cancel each other out. To everybody's utmost surprise, however, this has not happened. For example, Germany is currently being owed over 650 billion Euros. Needless to say, the countries who owe this money don't have it anymore.
> when goods are traded between two Euro countries, these goods aren't really paid for
This is a very politically biased and misleading perspective on reality.
Consider an alternative world in which the central banks of the Eurozone would have been consolidated entirely. That is, no more Bundesbank, no more De Nederlandsche Bank, only the ECB. All commercial banks would have central bank accounts directly there.
In this world, everything in the real economy would look exactly the same as it does in our world.
However, this alternative world would not have Target balances in its central bank system, and therefore nobody (including you) would ever even think to write that "goods aren't really paid for".
But how can it be that goods are paid for in this alternative world while they aren't paid for in our world? The answer is that that just doesn't make sense.
Goods are paid for even in our, non-hypothetical world. Yes, there are flow imbalances, but guess what: That happens in every region ever that has a unified currency.
If you don't like that, then please just be honest and come right out and say so. Don't try to cloud your opinion in misleading rhetoric.
> The idea behind this was that the liabilities within the TARGET2 system would cancel each other out. To everybody's utmost surprise, however, this has not happened.
So the eurosystem has been in the making for many decades, developed by many central bankers, and you are now here implying all of those central bankers would assume such a thing (it all cancels out) and could not predict that it would in reality NOT?
Of course, over any given time span --a month, a year-- not all trades will cancel each other out immediately. That's exactly why they have accounts and claims as core of the system. To keep track and balance/settle eventually in a stable "supra-national" unit, rather than one wildly fluctuating or politically-manipulated national or another.
Pretty neat if you ask me. Sucks for "notorious net debtors" of course..
Latvia has been a member of the EU since 2004 (which entails all you mention), and now it joined the Eurozone as well, and will use euro as its currency.
EU countries other than UK and Denmark (who joined much earlier) are both required and allowed to adopt EUR as currency only as soon as they fulfill certain economic/fiscal criteria (don't have the exact figures in my head, easy to search though), whether intentionally or accidentally.
Actually no. The UK is special in that they do not have to join the eurozone unless they want to all other EU members have to join the eurozone once they fullfil the necessary criteria.
They've also had their currency pegged to the Euro since 2005 (https://en.wikipedia.org/wiki/European_Exchange_Rate_Mechani...), so in a sense their currency has already for years been treated commercially as merely an alias unit for the Euro, like one converts lbs and kg at a fixed rate. The main difference with actually adopting the Euro is: 1) harder to change your mind later, since un-adopting the Euro is harder than abandoning a currency peg; and 2) easier for tourists and cross-border business, since the need for currency conversion & the associated fees is removed. It might also simplify cross-border business accounting, since you'd no longer have assets & liabilities in different currencies (even if pegged ones), though I know less about that.
Denmark is in a similar situation: the Danish crown is pegged to the Euro since 1999, so in practice Denmark has no real scope for independent monetary policy. Public opinion is still against joining the Euro for a mixture of nationalistic reasons (people like the currency as a symbol of sovereignty) and value put on having an exit option if things get too dicey (one exit option is to peg to the Swedish crown instead; another is to fully float).
I can read your comment as pointing this out already, but an important third option is to stay pegged to the Euro, but at a different exchange rate. That's a very large freedom that you lose when you "formalize" a Euro peg by just switching over to the Euro.
For example:
Year 2024: Our currency is pegged at 3.28 to the Euro.
Year 2027: Euros have become too valuable; our peg is now 4.1 to the Euro.
Good point, that's definitely another ability a country in ERM retains (though if done unilaterally it would still constitute pulling out of ERM as a treaty). That's what China does with their unilateral and occasionally revised peg to the dollar, for example.
I'm not entirely sure what the results would be, but you do lose some of the current benefits if people start believing the exchange rate is no longer really fixed. Currently the large amount of Danish-German cross-border trade effectively ignores currency exchange risk, because they assume the EUR-DKK peg as formalized through ERM is solid enough that it won't change in the forseeable future. So it's "safe" to have liabilities in DKK and revenue in EUR or vice-versa without taking any particular measures to hedge your risk. That was part of the goal of both the Euro and ERM, since being able to ignore exchange risk makes it easier for businesses to treat Europe as a single market. Once you change it once, then it might be a while again before businesses feel comfortable relying on the new peg.
