- Economic and Monetary Union of the European Union
In economics, a
monetary unionis a situation where several countries have agreed to share a single currency amongst themselves. The European Economic and Monetary Union (EMU) consists of three stages coordinating economic policy and culminating with the adoption of the euro, the EU's single currency. All member states of the European Unionare expected to participate in the EMU. Fifteen member states of the European Union have entered the third stage and have adopted the euro as their currency. The United Kingdom, Denmarkand Swedenhave not accepted the third stage and the three EU members still use their own currency today.
Copenhagen criteria, it is a condition of entry for states acceding to the EU that they be able to fulfil the requirements for monetary union within a given period of time. The 10 new countries that acceded to the European Union in 2004 all intend to join third stage of the EMU in the next ten years, though the precise timing depends on various economic factors. Similarly, those countries who are currently negotiating for entry will also take the euroas their currency in the years following their accession. (See Enlargement of the European Union.)On the 1st of January 2008 Cyprus and Malta joined the EMU.
Prior to adopting the euro, a member state has to have its currency in the
European Exchange Rate Mechanism(ERM II) for two years. Denmark, Estonia, Latvia, Lithuania, and Slovakiaare the current participants in the exchange rate mechanism.
EMU is sometimes misinterpreted to mean European Monetary Union.
History of the EMU
First ideas of an
economic and monetary unionin Europe were raised well before establishing the European Communities. For example, already in the League of Nations, Gustav Stresemannasked in 1929 for a European currency ( [http://ec.europa.eu/economy_finance/emu_history/documentation/chapter1/19290909fr06speechofgustavstresemann.pdf Link] ) against the background of an increased economic division due to a number of new nation states in Europe after WWI.
A first attempt to create an economic and monetary union between the members of the
European Communitiesgoes back to an initiative by the European Commissionin 1969, which set out the need for "greater co-ordination of economic policies and monetary cooperation" ( [http://ec.europa.eu/economy_finance/emu_history/documentation/chapter2/19690212en015coordineconpoli.pdf Barre Report] ), which was followed by the decision of the Heads of State or Government at their summit meeting in The Haguein 1969 to draw up a plan by stages with a view to creating an economic and monetary union by the end of the 1970s.
On the basis of various previous proposals, an expert group chaired by Luxembourg’s Prime Minister and Finance Minister,
Pierre Werner, presented in October 1970 the first commonly agreed blueprint to create an economic and monetary union in three stages ( [http://ec.europa.eu/economy_finance/emu_history/documentation/chapter5/19701008en72realisationbystage.PDF Werner plan] ). The project experienced serious setbacks from the crises arising from the non-convertibility of the US dollarinto gold in August 1971 (i.e. the collapse of the Bretton Woods System) and from rising oil prices in 1972. An attempt to limit the fluctations of European currencies, using a " snake in the tunnel", failed.
The debate on EMU was fully re-launched at the Hanover Summit in June 1988, when an ad hoc committee (Delors Committee) of the central bank governors of the twelve member states, chaired by the President of the
European Commission, Jacques Delors, was asked to propose a new timetable with clear, practical and realistic steps for creating an economic and monetary union [ Verdun A., The role of the Delors Committee in the creation of EMU: an epistemic community?, Journal of European Public Policy, Volume 6, Number 2, 1 June 1999 , pp. 308-328(21)] . This way of working was derived from the Spaak method.
The [http://europa.eu.int/comm/economy_finance/euro/origins/delors_en.pdf Delors report] of 1989 set out a plan to introduce the EMU in three stages and it included the creation of institutions like the
European System of Central Banks(ESCB), which would become responsible for formulating and implementing monetary policy.
The three stages for the implementation of the EMU were the following:
tage One: 1 July 1990 to 31 December 1993
*On 1 July 1990, exchange controls were abolished, thus capital movements were completely liberalised in the
European Economic Community.
Treaty of Maastrichtin 1992 establishes the completion of the EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability.
*The treaty enters into force on the 1 November 1993.
tage Two: 1 January 1994 to 31 December 1998
European Monetary Instituteis established as the forerunner of the European Central Bank, with the task of strengthening monetary cooperation between the member states and their national banks, as well as supervising ECU banknotes.
*On 16 December 1995, details such as the name of the new currency (the
euro) as well as the duration of the transition periods are decided.
*On 16-17 June 1997, the
European Councildecides at Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the euro, and a new exchange rate mechanism (ERM II) is set up to provide stability between the euro and the national currencies of countries that haven't yet entered the eurozone.
*On 3 May 1998, at the European Council in Brussels, the 11 initial countries that will participate in the third stage from 1 January 1999 are selected.
*On 1 June 1998, the
European Central Bank(ECB) is created, and in 31 December 1998, the conversion rates between the 11 participating national currencies and the euro are established.
tage Three: 1 January 1999 and continuing
*From the start of 1999, the euro is now a real currency, and a single monetary policy is introduced under the authority of the ECB. A three-year transition period begins before the introduction of actual
euro notesand coins, but legally the national currencies have already ceased to exist.
*On 1 January 2001, Greece joins the third stage of the EMU.
*The euro notes and coins are introduced in January 2002.
*On 1 January 2007, Slovenia joins the third stage of the EMU.
*On 1 January 2008, Cyprus and Malta join the third stage of the EMU.
*On 1 January 2009, Slovakia is to join the third stage of the EMU.
There have been debates as to whether the
Eurozonecountries constitute an optimum currency area. [ [http://www.nytimes.com/2008/05/01/world/europe/01euro.html?em&ex=1209787200&en=b4888c7172ee5774&ei=5087%0A "As Euro Nears 10, Cracks Emerge in Fiscal Union"] ( New York Times, 1 May 2008)]
European System of Central Banks
United Nations Monetary and Financial Conference(Bretton Woods)
* [http://ec.europa.eu/economy_finance/emu_history/index_en.htm EMU: A Historical Documentation (European Commission)]
* [http://ec.europa.eu/economy_finance/the_euro/index_en.htm?cs_mid=2946 The euro (European Commission Economic and Financial Affairs)]
* [http://samvak.tripod.com/nm032.html The euro and other currency unions in history]
* [http://www.uiowa.edu/ifdebook/faq/faq_docs/EMU.shtml What is the European Monetary Union?] University of Iowa Center for International Finance and Development
* [http://www.ena.lu?lang=2&doc=21149 Economic and Monetary Union of the European Union] European Navigator
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