What Is the Euro Exchange?

The Purpose

The European Exchange Rate Mechanism was created to stabilize the European economy to allow economic and monetary union of the entire European continent. It also had the goal of reducing exchange rate variability between different European countries. The ERM has set margins within which exchange rates can vary between the member nations. The maximum fluctuation allowed is 2.25 percent, but Italy has an exception and its currency can differ from the other member nations' by 6 percent.

The Eurozone is the section of Europe that has achieved economic and monetary union. There are 16 nations that are members of the Eurozone. They are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.

Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain were the first members of the Eurozone. These nations joined on Jan. 1, 1999, upon the creation of the ERM 2. Greece joined in 2000, Slovenia in 2007, Cyprus and Malta in 2008 and Slovakia in 2009.

Different countries contribute to the ERM's strength in different proportions. Belgium has a population of 10.7 million. Cyprus has a population of 800,000. Finland has a population of 5.3 million. France has a population of 64.1 million. Germany has a population of 82 million. Greece has a population of 11.2 million. Ireland has a population of 4.5 million. Italy has a population of 60.1 million. Luxembourg has a population of .5 million. Malta has a population of 400,000. Netherlands has a population of 16.5 million. Portugal has a population of 10.6 million. Slovakia has a population of 5.4 million. Slovenia has a population of 10.1 million. Spain has a population of 45.9 million. This is 328.5 million people united under the Eurozone, an attempt to unite trade interests.

The ERM 2 shares many of the same functions as the original ERM. However, instead of trying to unite the member nations, its goal is to get hopeful Eurozone member nations to conform to the economic regulations of the Eurozone. Before a nation is allowed to join the Eurozone, they must be a member of the ERM 2 for at least two years.