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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) exists between 12 of the 25 member states of the European Union which have adopted the euro as their single currency and who co-ordinate their economic policies.
Under the so-called Copenhagen criteria, it is a condition of entry for states acceding to membership of 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 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.)
Three of the 25 EU member states - Sweden, Denmark and the United Kingdom - have decided not to join the EMU at the present time.
EMU is sometimes misinterpreted to mean European Monetary Union.
History of the EMU
The Delors report (http://europa.eu.int/comm/economy_finance/euro/origins/delors_en.pdf) 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: 1st July 1990 to 31st December 1993
The Treaty of Maastricht in 1992 establishes 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 1st November 1993.
Stage Two: 1st January 1994 to 31st 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.
In 16th December 1995, details such as the name of the new currency (the Euro) as well as the duration of the transition periods are decided.
In 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.
In 1st 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: 1st 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.
The Euro notes and coins are finally introduced at January 2002
See Also
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