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The road to EMU

Economic and monetary union was a recurring ambition for the European Union from the late 1960s onwards because it promised stability and an environment for higher growth and employment.

However, a variety of political and economic obstacles barred the way. Weak political commitment, divisions over economic priorities and turbulence in international markets all played their role in frustrating progress towards EMU.

Despite these obstacles, the second half of the 20th century saw a constant search by the growing number of EU Member States for deeper economic integration as a means of strengthening the political bonds between them and protecting the common market.

The road towards today's Economic and Monetary Union and the euro area can be divided into four phases:

Phase 1: From the Treaty of Rome to the Werner Report, 1957 to 1970

The international currency stability that reigned in the immediate post-war period did not last. Turmoil on international currency markets between 1968 and 1969 threatened the common price system of the common agricultural policy, a main pillar of what was then the European Economic Community. In response to this troubling background, Europe's leaders set up a high-level group led by Pierre Werner, the Luxembourg Prime Minister at the time, to report on how EMU could be achieved by 1980.

Phase 2: From the Werner Report to the European Monetary System, 1970 to 1979

The Werner group set out a three-stage process to achieve EMU within ten years, including the possibility of a single currency. The Member States agreed in principle in 1971 and began the first stage – narrowing currency fluctuations. However, a fresh wave of currency instability on international markets squashed any hopes of tying the Community's currencies closer together. Subsequent attempts at achieving stable exchange rates were hit by oil crises and other shocks until, in 1979, the European Monetary System (EMS) was launched.

Phase 3: From the start of EMS to Maastricht, 1979 to 1991

The EMS was built on exchange rates defined with reference to a newly created ECU (European Currency Unit), a weighted average of EMS currencies. An exchange rate mechanism (ERM) was used to keep participating currencies within a narrow band. The EMS represented a new and unprecedented coordination of monetary policies between the Member States, and operated successfully for over a decade.

This success provided the impetus for further discussions between the Member States on achieving economic and monetary union. At the request of the European leaders, the European Commission President, Jacques Delors, and the central bank governors of the EU Member States produced the 'Delors Report' on how EMU could be achieved.

Phase 4: From Maastricht to the euro and the euro area, 1991 to 2002

The Delors Report proposed a three-stage preparatory period for economic and monetary union and the euro area, spanning the period 1990 to 1999. Preparations involved:

  • Stage 1: completing the internal market (1990-1994), namely through the introduction of the free movement of capital;
  • Stage 2: preparing for the European Central Bank (ECB) and the European System of Central Banks (ESCB), and achieving economic convergence (1994-1999); and
  • Stage 3: fixing exchange rates and launching the euro (1999 onwards).

European leaders accepted the recommendations in the Delors Report. The new Treaty on European Union, which contained the provisions needed to implement EMU, was agreed at the European Council held at Maastricht, the Netherlands, in December 1991. This Council also agreed the 'Maastricht convergence criteria' that each Member State would have to meet to participate in the euro area.

After a decade of preparations, the euro was launched on 1 January 1999. At the same time, the euro area came into operation, and monetary policy passed to the European Central Bank (ECB), established a few months previously – 1 June 1998 – in preparation for the third stage of EMU. After three years of working with the euro as 'book money' alongside national currencies, euro coins and banknotes were launched on 1 January 2002 and the biggest cash changeover in history took place in 12 EU countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain).

Enlargment, and reforms and completion of EMU

Seven countries have joined to euro area since then, bringing to 19 the total number of euro area countries. In 2007, Slovenia was the first of the 10 countries that joined the EU in 2004 to join the euro area, followed by Cyprus and Malta in 2008, Slovakia in 2009, then Estonia in 2011, Latvia in 2014 and Lithuania in 2015.

After a decade of EMU and against the background of the crisis the EU has taken important steps to improve its system of economic governance. The EU has strengthened the Stability and Growth Pact, introduced a new mechanism to prevent or correct macroeconomic imbalances and is coordinating structural reforms. These are crucial steps to strengthen the „E“ - the economic leg - of the EMU.

Moreover, in order to ensure the success of the euro in the long run, the European Institutions have laid down a roadmap to complete the architecture of the EMU by 2025.

  • Stage 1 or "Deepening by Doing" (1 July 2015 - 30 June 2017): using existing instruments and the current Treaties to boost competitiveness and structural convergence, achieving responsible fiscal policies at national and euro area level, completing the Financial Union and enhancing democratic accountability.
  • Stage 2, or "completing EMU” (by 2025): more far-reaching actions will be launched to make the convergence process more binding, through for example a set of commonly agreed benchmarks for convergence which would be of legal nature, as well as a euro area treasury.

A more detailed presentation of the roadmap can be found on the website describing the priorities of President Juncker: A Deeper and Fairer Economic and Monetary Union.

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