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Phase 3: the Delors Report

While the European Monetary System’s main goal was to reduce exchange-rate instability – which damages trade, investment and economic growth – its creation was helped by a new consensus among Member States that controlling and reducing inflation had to become an economic priority.

From the start of the European Monetary System to Maastricht – a decade of success

In the first few years, there were many currency realignments in the European Monetary System (EMS). But by the time of the negotiations on the Maastricht Treaty in 1990-91, it had proved a success. Short-term volatility of exchange rates between European Community currencies was substantially reduced, thanks to a mixture of converging inflation rates, and interest rate management which targeted the exchange rate.

This success formed an encouraging backdrop to the discussions on EMU, as did the valuable experience in the joint management of exchange rates gained by the Community’s central banks.

The single currency would complete the single market

The case for EMU turned on the need to complete the single market, the programme adopted in 1985 for removing all remaining barriers to the free movement of goods, services, people and capital. It was clear that the full benefits of the internal market would be difficult to achieve with the relatively high business costs created by the existence of several currencies and unstable exchange rates.

In addition, many economists and central bankers took the view that national monetary autonomy was inconsistent with the Community’s objectives of free trade, free capital movements and fixed exchange rates. For many, this view was later confirmed by the turmoil which hit the ERM in 1992-93, causing the withdrawal of the Italian lira and the pound sterling, and the widening of the fluctuation bands to 15%.

The Delors Report recommended EMU in three stages

In June 1988, the European Council meeting in Hanover, Germany, set up the Committee for the Study of Economic and Monetary Union, chaired by the then President of the Commission, Jacques Delors, and including all EC central bank governors. Their unanimous report, submitted in April 1989, defined the monetary union objective as a complete liberalisation of capital movements, full integration of financial markets, irreversible convertibility of currencies, irrevocable fixing of exchange rates, and the possible replacement of national currencies with a single currency.

The report indicated that this could be achieved in three stages, moving from closer economic and monetary coordination to a single currency with an independent European Central Bank and rules to govern the size and financing of national budget deficits.

The three stages towards EMU


And so to Maastricht


On the basis of the Delors Report, the Madrid European Council of June 1989 decided to proceed to the first stage of EMU in July 1990, and the 1989 Strasbourg European Council called for an intergovernmental conference to determine the Treaty revisions that would be needed to move to the second and third stages and implement EMU.

The first stage of EMU involved completing the internal market, starting with the coordination of economic policies and removing obstacles to financial integration. For the following stages, substantial preparatory work by central bank governors greatly eased the work of revising the Treaty.

The heads of state and government at the European Council at Maastricht in December 1991 approved the Treaty on European Union in which it was decided that Europe would have a stable single currency by the end of the century.

>> Phase 1: the Werner Report

>> Phase 2: the European Monetary System

>> Phase 4: three stages to EMU

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