Economic and Monetary Union of the European Union.html |
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In economics, a monetary union is 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 Union are 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, Denmark and Sweden have not accepted the third stage and the three EU members still use their own currency today.
Under the 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 euro as 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 Slovakia are the current participants in the exchange rate mechanism.
EMU is sometimes misinterpreted to mean European Monetary Union.
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History of the EMU
First ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. For example, already in the League of Nations, Gustav Stresemann 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 WWI.
A first attempt to create an economic and monetary union between the members of the European Communities goes back to an initiative by the European Commission 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 Hague 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 Werner, 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 dollar into 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 union1. This way of working was derived from the Spaak method.
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 Banks (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 Treaty of Maastricht in 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.
Stage Two: 1 January 1994 to 31 December 1998
- The European Monetary Institute 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) as well as the duration of the transition periods are decided.
- On 16-17 June 1997, the European Council decides 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.
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, 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.
Criticism
There have been debates as to whether the Eurozone countries constitute an optimum currency area.2
See also
References
- ^ 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)
- ^ "As Euro Nears 10, Cracks Emerge in Fiscal Union" (New York Times, 1 May 2008)
External links
- EMU: A Historical Documentation (European Commission)
- The euro (European Commission Economic and Financial Affairs)
- The euro and other currency unions in history
- What is the European Monetary Union? University of Iowa Center for International Finance and Development
- Economic and Monetary Union of the European Union European Navigator
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