European Economic and Monetary Union (EMU)

Union économique et monétaire (UEM)

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History

1 Jan 1999, when the 'euro' became currency of 11 of the then 15 member states of European Union (EU) as laid down by Treaty on European Union (Maastricht Treaty), signed 7 Feb 1992. Greece became the 12th member on 1 Jan 2001. Slovenia introduced the euro in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015. These countries are collectively referred to as Euro Zone. As from 1 Jan 2002, following a 3-year transition period to 31 Dec 2001, banks in these countries issue only euro notes and coins.

EMU was first proposed 1-2 Dec 1969, The Hague (Netherlands), at Summit Conference of Heads of Government and of State of the European Communities (EC), within the framework of Council of the European Union, as a long-term project to be achieved in stages. It was reconfirmed at subsequent meetings and in reports, notably the Werner report of 1971 and the Delors Report, 1989. The Delors Committee -- Comité Delors, created June 1988, comprising presidents of the central banks of the then 12 EEC member states in their personal capacities and several independent personalities, was an 'ad hoc' committee set up by European Council to discuss EMU. The Delors Committee suggested 3 stages but without fixing a timetable. (1) From 1 July 1990, full liberalization of capital movement would come into effect, with all currencies being integrated in the European Monetary System (EMS). (2) EU member states would sign a treaty instituting EMU and aiming at setting up a European System of Central Banks as well as reinforcing convergence of economic policies. (3) Parities would be permanently fixed, and the European System of Central Banks established, thus opening the way to replacement of their national currencies by a single currency. European Parliament (EP) proposed a swifter timetable, installing EMU by 1 Jan 1995, with the complete disappearance of national currencies by 1 Jan 1998. A secretariat responding to Committee of Governors of the Central Banks of the Member States of the European Economic Community monitored national financial economies and helped create the climate for progressive integration of the European economy. The overall design of a plan for economic and monetary union was agreed, Aug 1990, by Council of Finance Ministers of the European Union (Ecofin); but several complex issues remained to be resolved. The European Council, meeting 27-28 Oct 1990, Rome (Italy), set out a timetable agreed by all members except the UK, which led to finalizing a first phase by 31 Dec 1993, a maximum of 3 years later for finalizing a second phase and the passage to a third phase occurring in a reasonable time. The process involved strengthening the ability of Community institutions to act towards economic union and creation of a new monetary institution, European Central Bank (ECB), fully responsible for monetary policy and with the aim of maintaining price stability. Exchange rates would eventually be irrevocably fixed and the Community would have a single currency.

The Maastricht Treaty put the future establishment of the European Central Bank and European System of Central Banks (ESCB) on a firm footing. It formalized the setting up, 1 Jan 1994, of European Monetary Institute (EMI), whose Council comprised the Governors of European central banks and which took over the tasks of their Committee and of the European Monetary Cooperation Fund (EMCF). The Institute functioned during the second stage of the run-up towards union, monitoring progress of the European Monetary System, The second stage was designed to ensure that differences in national economic indicators disappeared as inflation, interest rates, exchange fluctuations, budget and public sector deficits converged with those of the best performing economies, with Ecofin intervening if national budget policies were inconsistent with Maastricht Treaty provisions. A Monetary Committee was set up to promote coordination of the policies of member states. This was superseded by an Economic and Financial Committee (EFC) at the beginning of the third stage, when the EMI was superseded by establishment of the European Central Bank. No date for the third stage had been fixed by 31 Dec 1997, so ESCB was established immediately after 1 July 1998 and Stage 3 followed on 1 Jan 1999, with establishment of the EMU as transition to the third stage occurred automatically on this date for those member states which had fulfilled the necessary conditions for the adoption of a single currency.

A Resolution of the European Council, 16 June 1997, Amsterdam (Netherlands), established an exchange-rate mechanism in the third stage of EMU; and agreement of 1 Sep 1998 between the European Central Bank and the National Central Banks of member states outside the euro area laid down operating procedures. Under the European Council resolution, a new Exchange-Rate Mechanism (ERM II) replaced the European Monetary System as from 1 Jan 1999, when Economic and Monetary Union became official and the EMS became obsolete. ERM II aims to maintain exchange-rate stability between the euro and participating national currencies so as to ensure that excessive exchange-rate fluctuations do not cause problems in the internal market.

Aims

Coordinate economic policy-making between Member States; coordinate fiscal policies, notably through limits on government debt and deficit; promote the single currency and the euro area.

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Activities

Operation of EMU is governed by a framework of laws and institutions which oblige participating member states to strive for closely coordinated, stable and disciplined national economic policies and to maintain limits on budget deficits and public debts laid down by the Maastricht Treaty and by the Stability and Growth Pact, comprising:

 • 1. Commitments set out in a resolution of the European Council, adopted June 1997, Amsterdam (Netherlands), aiming for budget balances close to or in surplus by 2002.

 • 2. Surveillance of budgetary positions of member states and surveillance and coordination of their economic policies in accordance with regulations of the Council.

 • 3. Early warning system to avoid an excessive budget deficit. Council may issue a recommendation to the member state concerned to take adjustment measures.

 • 4. Council regulation on speeding up and clarifying implementation of excessive deficit procedures, including details of sanctions for failure to fulfil commitments on budgetary discipline.

The euro, replacing the European Currency Unit (ECU), became a currency in its own right on 1 Jan 1999. In late 1998 these countries had already cut their interest rates to a uniformly low level so as to promote growth and prepare the way for a unified currency. Greece adopted the euro on 1 Jan 2001. Euro coins and notes were introduced into circulation in Jan 2002 and local currencies in the countries adopting the euro were withdrawn from circulation by July 2002. Cohesion Fund, established under the Maastricht Treaty, worked with existing funds to smooth the way towards EMU for member states whose per capita GDP was less than 90% of the Community average. Euro Interbank Offered Rate (Eurobor) is the benchmark interbank reference rate within the Economic and Monetary Union, the rate at which euro interbank term deposits are offered by one prime bank to another prime bank. It was first published on 30 Dec 1998 for value 4 Jan 1999, being the underlying rate of many derivatives transactions. The choice of banks quoting for Euribor is based on market criteria.

Relations with Inter-Governmental Organizations

Relations with 4 inter-governmental organizations.
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Relations with Non-Governmental Organizations

Relations with 2 non-governmental organizations.
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Publications

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Members

Members in 0 countries
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Type I Classification

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Type II Classification

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UIA Org ID

F4335

Last News Received

2017
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