Economic and Monetary Union of the European Union

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This article covers the EMU of the European Union. For general information on the topic of Economic and monetary unions see here.

Template:Politics of the European Union In economics, a monetary union is a situation where several countries have agreed to share a single currency among them. 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 participate in the EMU. Twelve member states of the European Union have entered the third stage and have adopted the euro as their currency. The United Kingdom and Denmark have opt-outs exempting them from the transition to the third stage of the EMU. The remaining eleven member states are required to enter the third stage and adopt the euro.

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.)

Prior to adopting the euro, a member state has to have its currency in the European Exchange Rate Mechanism (ERM II) for two years. Cyprus, Denmark, Estonia, Latvia, Lithuania, Malta, Slovenia and Slovakia are the current participants in the exchange rate mechanism.

EMU is sometimes misinterpreted to mean European Monetary Union.

1 History of the EMU
2 Conflict with Re-emergent Separatism
3 See also
4 External links

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History of the EMU

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.

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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 EEC.
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.

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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 won't yet have 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.

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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 finally introduced in January 2002.

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Criticism

There are doubts as to whether the Euro-zone countries constitute an Optimal Currency Area or whether the implementation of the Eu Four Freedoms is anything other than a theoretical dream. By contrast with the United States of America, the people of Europe do not share a common language, religion or culture and Europe's history of war between neighbouring states illustrates the deeply-ingrained, historical cultural divisions.

The lack of a common language means that the free movement of people is a virtual impossibility, and this is compounded by the fact that professionals in each country adhere to different professional standards and conventions. Social mobility for workers of the vast majority of professions is therefore inconceivable without massive cultural and legislative change and the adoption of a continent-wide common language. Linguistic barriers are clearly also a major inhibition to the free provision of services; the difficulty of catering for the languages of all member states is beyond most corporate budgets or capabilities.

To enable true free movement of goods and free movement of capital, significant harmonisation and opening-up of economies would be a necessity, but these aims are proving difficult to implement in the real world. In a democratic system, political ideals of such audacious scope cannot be imposed upon unwilling populations. If anything, the people of Euro-zone member states seem to be realising to their horror what the true implications of Monetary Union are and there is speculation as of early 2006 that Italy may actually withdraw. What was a project borne out of post-WWII idealism has thus run into the sobering facts of practical reality.

For example, as of 2006, the French reject almost entirely the Anglo-Saxon model of capitalism and remain strongly protectionist, even in the face of high youth unemployment. As a second example, the budget deficit problems in Italy and Germany are now a continent-wide issue, because Euro-zone interest rates have to be set not just for low-growth Italy and Germany, but also high-growth Ireland.

Lastly, France has tested the patience of the European Union by enacting legislation in January 2006 that allows the French government to veto or impose conditions on foreign takeovers in sectors that the government deems to be linked to national security, such as casino gambling, and yet French companies have been freely taking over companies in other nations. This has provoked allegations of asymmetry, hypocrisy or even arrogant duplicity, which would be inconsistent with an ever-closer European Union.

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Conflict with Re-emergent Separatism

Debate has been prompted by the re-emergence of nationalist separatism in the smaller regions of Europe such as Slovakia, the Balkans in general (now Kosovo and Montenegro), Transdniester, Scotland, Wales, Bavaria, Savoy, Corsica, Brittany, Chechnya and even Cornwall. This debate has focused on whether it is wise to continue with a unification process at the same time that separatism has taken on a new virulence, and whether these two cross-currents can be reconciled. For some, separatism will always be a feature of human history and national boundaries are a result of the balance between these two opposing forces.