The monetary union is one of the most developed stages of the economic integration process and theoretically the monetary union should include a common market, co-ordination of monetary and economic policies, common authority which acts like a central bank and a common money.
The Economic and Monetary Union
The Economic and Monetary Union (EMU) established in 1992 as a result of Maastricht Treaty is the best known example of monetary union. Basis of the EMU was set up by the constitution of the committee represented by the European Commission, Jacques Delors. The results of the committee were presented as the Delors Report in 1989.
In case of EMU there is a common market between all EU member states and the co-ordination of their economic policies through national convergence programmes and multilateral surveillance. Moreover, the European Central Bank (ECB), the main monetary authority of the EMU, co-ordinates monetary policies of all EU members which introduced the single currency after January 1999. The ECB with national central banks create the European System of Central Banks (ESCB) which is fully responsible for setting one common monetary policy.
Participants of EMU
Although all EU member countries are participants of EMU, only 16 of them have introduced the euro so far i.e.: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, The Netherlands, Portugal, Slovakia, Slovenia, Spain.
The Maastricht Treaty envisaged so called 'convergence' criteria to be satisfied before the member states could participate in the euro:
- the inflation rate no more than 1,5% above the average of the 3 countries having the lowest inflation rate in the EU
- the public debt of the country has to be less than 60% of GDP
- the national budget deficit has to be less than 3% of GDP
- the long-term interests should be no more than 2% above the average of the 3 countries with the lowest inflation rates
- the exchange rates of the country should be within the normal band (+/- 2,25%) of the Exchange Rate Mechanism (ERM) without tension and devaluation for 2 years before the assessment.
- Von Hagen, J., & Eichengreen, B. (1996). Federalism, fiscal restraints, and European monetary union. The American Economic Review, 86(2), 134-138.
Author: Przemysław Żur