Thank you David!
That was EXACTLY what I needed. I have one last question: 

I want to create a mix of EMU and nonEMU country pairs. I have tried with:

EMUmix1<-Reduce(`&`, lapply(countries,function(x,y){country1 %in% euro &
country2 %in%   noneuro})) 
 
# Where euro are the EMU countries and noneuro are (obviously) the nonEMU
countries
 
 EMUmix2<-Reduce(`&`, lapply(countries,function(x,y) {country1 %in% noneuro
& country2 %in%   euro})) 


 EMUmix3<-Reduce(`&`, lapply(countries,function(x,y) {country1 %in% euro2 &
country2 %in%   noneuro})) 

# euro2 are also the EMUcountries, BUT in 2001 Greece became a EMU member.
So in the interval (1999:2000)  
all euro countries are reprsentated  and from 2001- all euro+GREECE=euro2
are representated. 

 EMUmix4<-Reduce(`&`, lapply(countries,function(x,y) {country1 %in% noneuro
& country2 %in%   euro2})) 


 

 EMUmixnonGRC<-ifelse(year %in% (1999:2000),EMUmix1|EMUmix2,0)

 EMUmixGRC<-ifelse(year >= 2001,EMUmix3|EMUmix4,0)

 EMUmix<- EMUmixnonGRC|EMUmixGRC


 data2<- cbind(data1,EMUmixnonGRC,EMUmixGRC)

# This dosent QUITE work. I get 0 in (1992:1998) and from 2001- there is
neither a problem, BUT in (1999:2000) there is a problem:
every country pair where Greece (nonEMU at the time) in either country1 list
or country 2 is paired with an EMU country I recieve a 0, where I of course
seek a 1, hence i am looking for EMUmix

Anyone ? 

ps. thanks to everyone for helping me so far: michael, David, Berend, Rui
etc. I know I have a LOT to learn

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