Economic and Monetary Union (EMU)
The Treaty on European Union (Treaty) was signed in Maastricht in February 1992 and entered into force on 1 November 1993. It envisaged the creation of an Economic and Monetary Union (EMU) among European Union (EU) Member States. The three stages to achieve EMU were set out as follows:
- Stage One began in July 1990 and essentially entailed the liberalisation of capital movements between EU Member States.
- The beginning of Stage Two was marked by the creation of the European Monetary Institute in January 1994, which, together with the national central banks of the EU Member States, carried out the preparatory work for the establishment of the European Central Bank and the single monetary policy. At the beginning of this stage, a number of Treaty provisions entered into force aimed at promoting fiscal discipline and fostering the autonomy of national central banks (Articles 101 to 104 of the Treaty). These provisions include the prohibition of monetary financing of public entities and of their privileged access to financial institutions. The Treaty also stipulates that Member States shall not be liable for or assume the commitments of public entities of another Member State. Finally, these provisions include the excessive deficit procedure In June 1997 the European Council adopted a Resolution on the Stability and Growth Pact , aimed at clarifying the implementation of the excessive deficit procedure and strengthening multilateral surveillance of EU Member States’ economic policies.
- Stage Three started on 1 January 1999 with the introduction of the euro as the single currency and the conduct of single monetary and exchange rate policy in Europe. The adoption of the euro is conditional on the compliance with a number of criteria related to price stability, public finance soundness, exchange rate stability and converging long-term interest rates, as well as with requirements of central bank independence (Article 121 of the Treaty). For more details on convergence criteria, see the ECB’s Convergence Report.
Eleven Member States fulfilled the necessary conditions for adopting the euro on 1 January 1999: Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland. Greece adopted the euro on 1 January 2001, Slovenia on 1 January 2007, Cyprus and Malta on 1 January 2008 and Slovakia on 1 January 2009.
The United Kingdom and Denmark have a special status, defined in the relevant protocols annexed to the Treaty, which grant them the right to decide whether or not to participate in Stage Three of EMU. Both countries – Denmark in 1992 and the United Kingdom in 1997 – notified the EU Council that they would not participate in Stage Three.
The other Member States – Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Rumania and Sweden – count as “Member States with a derogation” and can only adopt the euro when they fulfil the eligibility criteria. Progress towards convergence in these Member States is assessed every two years or at the request of a Member State with a derogation (Article 122 of the Treaty).