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The Economic and Monetary Union (EMU)   Members of the Eurozone   ERM-II-member with opt-out (Denmark)   EU-member with opt-out (United Kingdom)   The rest of the EU-members
The Economic and Monetary Union (EMU)   Members of the Eurozone   ERM-II-member with opt-out (Denmark)   EU-member with opt-out (United Kingdom)   The rest of the EU-members

The Economic and Monetary Union (EMU)[1] is an umbrella term for the group of policies aimed at converging the economies of member states of the European Union at three stages. The policies cover the 19 eurozone states, as well as non-euro European Union states.

Each stage of the EMU consists of progressively closer economic integration. Only once a state participates in the third stage it is permitted to adopt the euro as its official currency. As such, the third stage is largely synonymous with the eurozone. The euro convergence criteria are the set of requirements that needs to be fulfilled in order for a country to join the eurozone. An important element of this is participation for a minimum of two years in the European Exchange Rate Mechanism ("ERM II"), in which candidate currencies demonstrate economic convergence by maintaining limited deviation from their target rate against the euro.

Nineteen EU member states, including most recently Lithuania, have entered the third stage and have adopted the euro as their currency. All new EU member states must commit to participate in the third stage in their treaties of accession. Only Denmark and the United Kingdom, whose EU membership predates the introduction of the euro, have legal opt outs from the EU Treaties granting them an exemption from this obligation. The remaining seven non-euro member states are obliged to enter the third stage once they comply with all convergence criteria.


The idea of an economic and monetary union in Europe was first raised well before establishing the European Communities. For example, the Latin Monetary Union existed from 1865-1927.[2][3] In the League of Nations, Gustav Stresemann asked in 1929 for a European currency[4] against the background of an increased economic division due to a number of new nation states in Europe after World War I.

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,"[5] 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 Hannover 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.[6] 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.[7]

The three stages for the implementation of the EMU were the following:

  • On 1 July 1990, exchange controls are abolished, thus capital movements are 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.
  • 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 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 (ECB) is created, and on 31 December 1998, the conversion rates between the 11 participating national currencies and the euro are established.
  • 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.
  • On 1 January 2002, the euro notes and coins are introduced.
  • 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.
  • On 1 January 2011, Estonia joins the third stage of the EMU.
  • On 1 January 2014, Latvia joins the third stage of the EMU.
  • On 1 January 2015, Lithuania joins the third stage of the EMU.


There have been debates as to whether the Eurozone countries constitute an optimum currency area.[8]

There has also been a lot of doubt if all eurozone states really fulfilled a "high degree of sustainable convergence" as demanded by the Maastricht treaty as condition to join the Euro without getting into financial trouble later on.

Since membership of the eurozone establishes a single monetary policy for the respective states, they can no longer use an isolated monetary policy, e.g. to increase their competitiveness at the cost of other eurozone members by printing money and devalue, or to print money to finance excessive government deficits or pay interest on unsustainable high government debt levels. As a consequence, if member states do not manage their economy in a way that they can show a fiscal discipline (as they were obliged by the Maastricht treaty), they will sooner or later risk a sovereign debt crisis in their country without the possibility to print money as an easy way out. This is what happened to Greece, Ireland, Portugal, Cyprus, and Spain.[9] However, Nobel Prize for Economics winner Robert Mundell takes the opposite view, that this short-term fix would create more significant long term problems.

Plans for reformed Economic and Monetary Union

Being of the opinion that the pure austerity course was not able to solve the Euro-crisis, French President François Hollande reopened the debate about a reform of the architecture of the Eurozone. The intensification of work on plans to complete the existing EMU in order to correct its economic errors and social upheavals soon introduced the keyword "genuine" EMU.[10] At the beginning of 2012, a proposed correction of the defective Maastricht currency architecture comprising: introduction of a fiscal capacity of the EU, common debt management and a completely integrated banking union, appeared unlikely to happen.[11] Additionally, there were widespread fears that a process of strengthening the Union's power to intervene in eurozone member states and to impose flexible labour markets and flexible wages, might constitute a serious threat to Social Europe.[12]

In December 2012, at the height of the European sovereign debt crisis, which revealed a number of weaknesses in the architecture of the EMU, a report entitled "Towards a genuine Economic and Monetary Union" was issued by the four presidents of the Council, European Commission, ECB and Eurogroup. The report outlined the following roadmap for implementing actions being required to ensure the stability and integrity of the EMU:[13]

In June 2015, a follow-up report entitled "Completing Europe's Economic and Monetary Union" (often referred to as the ""Five Presidents Report" [27] ) was issued by the presidents of the Council, European Commission, ECB, Eurogroup and European Parliament. The report outlined a roadmap for further deepening of the EMU, meant to ensure a smooth functioning of the currency union and to allow the member states to be better prepared for adjusting to global challenges:[16]

  • Stage 1 (July 2015 - June 2017): The EMU should be made more resilient by building on existing instruments and making the best possible use of the existing Treaties. In other words, "deepening by doing". This first stage comprise implementation of the following eleven working points.
  • Stage 2: The achievements of the first stage would be consolidated. On basis of consultation with an expert group, the European Commission will publish a white paper in Spring 2017, which will conduct an assessment of progress made in Stage 1, and outline in more details the next steps and measures needed for completion of the EMU in Stage 2. This second stage is currently envisaged to comprise:
  • Stage 3 (by 2025): Reaching the final stage of "a deep and genuine EMU", by also considering the prospects of potential EU treaty changes.

All of the above three stages are envisaged to bring further progress on all four dimensions of the EMU:[16]

Further reading

  • Simonazzi, Annamaria; Vianello, Fernando (2000), "Italy towards European Monetary Union (and domestic socio-economic disunion)", in Moss, Bernard H.; Michie, Jonathan (eds.), The single European currency in national perspective: a community in crisis?, Basingstoke: Macmillan, ISBN 9780333792933.
  • Hacker, Björn (2013). On the way to a fiscal or a stability union? The plans for a "genuine" economic and monetary union [28] (PDF). Berlin: Friedrich-Ebert-Stiftung, Internat. Policy Analysis. ISBN 9783864987465.
  • Miles, Lee; Doherty, Gabriel (March 2005). "The United Kingdom: a cautious euro-outsider". Journal of European Integration. 27 (1): 89–109. doi:10.1080/07036330400030064 [29] .
  • Howarth, David (March 2007). "The domestic politics of British policy on the Euro". Journal of European Integration. 29 (1): 47–68. doi:10.1080/07036330601144409 [30] .
  • Negyesi, K., & Dzanic, E. (2015). Hungary and the Monetary Union-Prospects and Implications. PROCEEDING BOOK, 78 [31]
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