A monetary union is an arrangement 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, achieving economic convergence (that is, their economic cycles are broadly in step) and culminating with the adoption of the
euroThe euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
, the EU's single currency. All member states of the
European UnionThe European Union is an economic and political union of 27 Member States, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community...
are expected to participate in the EMU.
A monetary union is an arrangement 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, achieving economic convergence (that is, their economic cycles are broadly in step) and culminating with the adoption of the
euroThe euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
, the EU's single currency. All member states of the
European UnionThe European Union is an economic and political union of 27 Member States, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community...
are expected to participate in the EMU. The
Copenhagen criteriaThe Copenhagen criteria are the rules that define whether a country is eligible to join the European Union. The criteria require that a state have the institutions to preserve democratic governance and human rights, have a functioning market economy, and accept the obligations and intent of the EU...
is the current set of conditions of entry for states wanting to join the EU. It contains the requirements that need to be fulfilled and the time framework within which this must be done in order for a country to join the monetary union. An important element of this is the
European Exchange Rate MechanismThe European Exchange Rate Mechanism, ERM, was a system introduced by the European Community in March 1979, as part of the European Monetary System , to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of...
("ERM II"), in which candidate currencies demonstrate economic convergence by maintaining limited deviation from their target rate against the euro.
All member states, except Denmark and the United Kingdom, have committed themselves by treaty to join EMU.
Sixteen member statesThe eurozone is an economic and monetary union of 16 European Union member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,...
of the European Union have entered the third stage and have adopted the euro as their currency.
DenmarkDenmark is a Scandinavian country in Northern Europe and the senior member of the Kingdom of Denmark. It is the southernmost of the Nordic countries; southwest of Sweden and south of Norway, and it is bordered to the south by Germany. Denmark borders both the Baltic and the North Sea...
,
EstoniaEstonia , officially the Republic of Estonia , is a country in Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by the Russian Federation...
,
LatviaLatvia , officially the Republic of Latvia is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , and to the southeast by Belarus . Across the Baltic Sea to the west lies Sweden...
, and
LithuaniaLithuania , officially the Republic of Lithuania is a country in Northern Europe, the southernmost of the three Baltic states. Situated along the southeastern shore of the Baltic Sea, it shares borders with Latvia to the north, Belarus to the southeast, Poland, and the Russian exclave of...
are the current participants in the exchange rate mechanism. Of the pre-2004 members, the
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
and
SwedenSweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe...
have not joined ERM II and Denmark remains in ERM without proceeding to the third stage. The five remaining (post-2004) states have yet to achieve sufficient convergence to participate. These eleven EU members continue to use
their own currenciesThere are thirteen currencies of the European Union as of 2009, the principal currency being the euro. The euro is used by the the institutions of the European Union and by the eurozone states, which account for 16 of the 27 member states of the European Union...
.
- EMU is sometimes referred to as European Monetary Union, this is not correct.
History of the EMU
First ideas of an
economic and monetary unionAn economic and monetary union is a type of trade bloc which is composed of a single market with a common currency. It is to be distinguished from a mere currency union , which does not involve a single market. This is the fifth stage of economic integration...
in Europe were raised well before establishing the
European CommunitiesThe European Communities were three international organisations that were governed by the same set of institutions...
. For example, already in the
League of NationsThe League of Nations was an inter-governmental organization founded as a result of the Treaty of Versailles in 1919–1920. At its greatest extent from 28 September 1934 to 23 February 1935, it had 58 members...
,
Gustav Stresemannwas a German liberal politician and statesman who served as Chancellor and Foreign Minister during the Weimar Republic. He was co-laureate of the Nobel Peace Prize in 1926.Stresemann's politics defy easy categorization...
asked in 1929 for a European currency (
Link) against the background of an increased economic division due to a number of new nation states in Europe after
WWIWorld War I , also known as the First World War, the Great War, and the War to End All Wars, was a global military conflict which involved most of the world's great powers, assembled in two opposing alliances: the Triple Entente and the Triple Alliance...
.
A first attempt to create an economic and monetary union between the members of the
European CommunitiesThe European Communities were three international organisations that were governed by the same set of institutions...
goes back to an initiative by the
European CommissionThe European Commission acts as an executive of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union.The Commission operates in the method of cabinet government, with 27...
in 1969, which set out the need for "greater co-ordination of economic policies and monetary cooperation" (
Barre Report), which was followed by the decision of the Heads of State or Government at their summit meeting in
The HagueThe Hague is the third largest city in the Netherlands after Amsterdam and Rotterdam, with a population of 485,818 and an area of approximately 100 km²...
in 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 WernerPierre Werner was a Luxembourg politician. Pierre Werner was born in Saint André near Lille in France to parents from Luxembourg. During the Nazi occupation of Luxembourg Werner, working as a banker, gave clandestine support to the resistance against the occupation forces...
, presented in October 1970 the first commonly agreed blueprint to create an economic and monetary union in three stages (Werner plan). The project experienced serious setbacks from the crises arising from the non-convertibility of the US
dollarThe dollar is the name of the official currency in several countries, including Australia, Canada, the Eastern Caribbean territories, Hong Kong, Singapore, and the United States.-History:...
into gold in August 1971 (i.e. the collapse of the
Bretton Woods SystemThe Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
) and from rising oil prices in 1972. An attempt to limit the fluctations of European currencies, using a
snake in the tunnelThe snake in the tunnel was the first attempt at European monetary cooperation in the 1970s, aiming at limiting fluctuations between different European currencies...
, 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 CommissionThe European Commission acts as an executive of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union.The Commission operates in the method of cabinet government, with 27...
,
Jacques DelorsJacques Lucien Jean Delors is a French economist and politician, the first person to have served two terms as President of the European Commission .-French Politics:...
, was asked to propose a new timetable with clear, practical and realistic steps for creating an economic and monetary union. This way of working was derived from the
Spaak methodThe Spaak-method of negotiating is named after Paul-Henri Spaak, who applied this method at the Intergovernmental Conference on the Common Market and Euratom in 1956 at Val Duchesse castle in preparing for the Treaties of Rome in 1957....
.
The
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 BanksThe European System of Central Banks is composed of the European Central Bank and the national central banks of all 27 European Union Member States.-Functions:...
(ESCB), which would become responsible for formulating and implementing monetary policy.
The three stages for the implementation of the EMU were the following:
Stage 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
The European Economic Community was an international organisation that existed between 1958 and 1993 which was created to bring about economic integration between Belgium, France, Germany, Italy, Luxembourg and the Netherlands.It was...
.
- The Treaty of Maastricht in 1992 establishes the completion of the EMU as a formal objective and sets a number of economic convergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...
, concerning the inflation rate, public finances, interest rates and exchange rate stability.
- The treaty enters into force on the 1 November 1993.
Stage Two: 1 January 1994 to 31 December 1998
- The European Monetary Institute
The European Monetary Institute was the forerunner of the European Central Bank . It encouraged cooperation between the national banks of the member states of the EU....
is 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
The euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
) as well as the duration of the transition periods are decided.
- On 16-17 June 1997, the European Council
The European Council is the highest political body of the European Union. It comprises the heads of state or government of the Union's member states along with the President of the European Commission...
decides at Amsterdam to adopt the Stability and Growth PactThe Stability and Growth Pact is an agreement by European Union member states related to their conduct of fiscal policy, to facilitate and maintain Economic and Monetary Union of the European Union....
, designed to ensure budgetary discipline after creation of the euro, and a new exchange rate mechanism (ERM II) is set up to provide stability above 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
The European Central Bank is one of the world's most important central banks, responsible for monetary policy covering the 16 member States of the Eurozone. It was established by the European Union in 1998 with its headquarters in Frankfurt, Germany.-History:Technically the predecessor to the ECB...
(ECB) is created, and in 31 December 1998, the conversion rates between the 11 participating national currencies and the euro are established.
Stage 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 notes and coins
There are eight euro coins, ranging in value from one cent to two euros . The coins first came into use in 2002. They have a common reverse, portraying a map of Europe, but each country in the eurozone has its own design on the obverse, which means that each coin has a variety of different designs...
, 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 joins the third stage of the EMU.
- For continuing information, see Euro
The euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
, EurozoneThe eurozone is an economic and monetary union of 16 European Union member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,...
and Enlargement of the EurozoneEnlargement of the eurozone is at present a continuing process within the European Union . All member states of the EU, except for Denmark and the United Kingdom , are obliged to adopt the euro as their sole currency when they meet the criteria...
.
Criticism
There have been debates as to whether the
EurozoneThe eurozone is an economic and monetary union of 16 European Union member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,...
countries constitute an
optimum currency areaIn economics, an optimum currency area , also known as an optimal currency region , is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. It describes the optimal characteristics for the merger of currencies or the creation of a...
.
See also
- European System of Central Banks
The European System of Central Banks is composed of the European Central Bank and the national central banks of all 27 European Union Member States.-Functions:...
- Currencies of the European Union
There are thirteen currencies of the European Union as of 2009, the principal currency being the euro. The euro is used by the the institutions of the European Union and by the eurozone states, which account for 16 of the 27 member states of the European Union...
- Black Wednesday
In British politics and economics, Black Wednesday refers to the events of 16 September 1992 when the Conservative government was forced to withdraw the pound from the European Exchange Rate Mechanism after they were unable to keep sterling above its agreed lower limit...
External links