Economic and Monetary Union, EMU
- The third stage of the EMU introduced the Euro in the 12 Eurozone countries. (Photo: European Commission)
Established by the Treaty of Maastricht in 1993. The EMU established the EU currency. It placed a ceiling on public spending and the funding of public expenditure, not least a ban on the printing and circulation of national money.
EMU had three stages of preparation, the third and final stage began on January 1st 1999 with the legal introduction of the Euro as a single currency. The EMU provides a common central bank for the countries which use the Euro (the Eurozone countries), the European Central Bank (ECB) and the European System of Central Banks. The ECB issues the currency for the Eurozone countries and thereby controls the issue of credit for the entire zone.
The Treaty of Maastricht demands low inflation. The ECB has decided to keep inflation in the Eurozone at 2% or less per annum. The ECB is not politically controlled and is forbidden by the Treaty from taking instructions from any government or any EU institution.
The Treaty requires member governments to manage their economies so that they are consistent with the ECB’s monetary policy.
In order to join the EMU countries’ economies have to meet four criteria (convergence criteria). After joining, countries must agree to keep their spending at a certain level (Stability and Growth Pact).
Under the Stability and Growth Pact governments that run excessive budget deficits (i.e. spend more than their income), and do not attempt to solve this problem, may be fined.
In 2003 both Germany and France broke the rule stating that governments cannot run a yearly deficit of more than 3% of the Gross National Product (GNP). They were not fined. After the 2008 financial crisis more member states found themselves in breach of the ceilings for public spending and were threatened with fines.
Links
See also Euroland and Optimum currency area
http://www.ecb.int/ecb/history/emu/html/index.en.html
