Economic and Monetary Union (emu)

History

In June 1988 the European Council confirmed the objective of the progressive realization of Economic and Monetary Union (EMU). It mandated a committee chaired by Jacques Delors, the then President of the European Commission, to study and propose concrete stages leading to this union.

Economic and monetary union evolved in three discrete but evolutionary steps.

First step - On the basis of the Delors Report, the European Council decided in June 1989 that the first stage of the realisation of economic and monetary union should begin on 1 July 1990. On this date, in principle, all restrictions on the movement of capital between Member States were abolished.

The Committee of Governors of the central banks of the Member States of the European Economic Community, which had played an increasingly important role in monetary cooperation since its creation in May 1964, was given additional responsibilities. These were laid down in a Council Decision dated 12 March 1990. Their new tasks included holding consultations on, and promoting the coordination of, the monetary policies of the Member States, with the aim of achieving price stability.

In view of the relatively short time available and the complexity of the tasks involved, the preparatory work for Stage Three of Economic and Monetary Union (EMU) was also initiated by the Committee of Governors. The first step was to identify all the issues which should be examined at an early stage, to establish a work programme by the end of 1993 and to define accordingly the mandates of the existing sub-committees and working groups established for that purpose.

For the realization of Stages Two and Three, it was necessary to revise the Treaty establishing the European Economic Community (the Treaty of Rome) in order to establish the required institutional structure. To this end, an Intergovernmental Conference on EMU was convened, which was held in 1991 in parallel with the Intergovernmental Conference on political union.

The negotiations resulted in the Treaty on European Union which was agreed in December 1991 and signed in Maastricht on 7 February 1992. However, owing to delays in the ratification process, the Treaty (which amended the Treaty establishing the European Economic Community - changing its name to the Treaty establishing the European Community - and introduced, inter alia, the Protocol on the Statute of the European System of Central Banks and of the European Central Bank and the Protocol on the Statute of the European Monetary Institute) did not come into force until 1 November 1993. The first stage in the process began on 1 July 1990 with the liberalization of capital movements.

Second step - The establishment of the European Monetary Institute (EMI) on 1 January 1994 marked the start of the second stage of EMU and with this the Committee of Governors ceased to exist. The EMI's transitory existence also mirrored the state of monetary integration within the Community. The EMI had no responsibility for the conduct of monetary policy in the European Union - this remained the preserve of the national authorities - nor had it any competence for carrying out foreign exchange intervention.

The two main tasks of the EMI:

 strengthening cooperation between the national central banks and the coordination of Member States' monetary policies (during this stage, monetary policy remains in the hands of the national authorities);

 carrying out the necessary preparatory work for establishment of the European System of Central Banks (ESCB), which is to conduct the single monetary policy from the beginning of the third stage, and for introduction of the single currency.

To this end, the EMI provided a forum for consultation and for an exchange of views and information on policy issues and it specified the regulatory, organisational and logistical framework necessary for the ESCB to perform its tasks in Stage Three.

In December 1995 the European Council agreed to name the European currency unit to be introduced at the start of Stage Three, the 'euro', and confirmed that Stage Three of EMU would start on 1 January 1999. A chronological sequence of events was pre-announced for the changeover to the euro. This scenario was mainly based on detailed proposals elaborated by the EMI

At the same time, the EMI was given the task of carrying out preparatory work on the future monetary and exchange rate relationships between the euro area and other EU countries. In December 1996 the EMI presented its report to the European Council, which formed the basis of a Resolution of the European Council on the principles and fundamental elements of the new exchange rate mechanism (ERM II), which was adopted in June 1997.

Third step - On 1 January 1999 final stage of EMU commenced with the irrevocable fixing of the exchange rates of the currencies of the 11 Member States initially participating in Monetary Union and with the conduct of a single monetary policy under the responsibility of the ECB.

The number of participating Member States increased to 12 on 1 January 2001, when Greece entered the third stage of EMU. Since that day the Bank of Greece has been part of the Eurosystem. Greece's participation followed a decision taken on 19 June 2000 by the EU Council - meeting in the composition of the Heads of State or Government - that Greece fulfilled the convergence criteria.

Advantages of the EMU:

* the costs decrease in transactions with the countries of the euro zone,

* reduction of the degree of uncertainty among the currencies of each nation with respect to the exchange rate, as it should improve the quality of the information with which consumers as well as companies can take decisions,

* greater prices transparency when all goods will be labeled in euros, that will provoke an increase in the level of competition in the single market,

* promotion of economic integration will result