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.
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.
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 EU 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.
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 EU countries, and operated successfully for over a decade.
This success provided the impetus for further discussions between EU countries 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.
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:
- completing the internal market (1990-1994), namely through the introduction of the free movement of capital
- preparing for the European Central Bank (ECB) and the European System of Central Banks (ESCB), and achieving economic convergence (1994-1999)
- 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).
The largest-ever currency changeover
The introduction of euro banknotes and coins in 2002 was the largest-ever currency changeover. In preparation for it, around 14 billion notes and 52 billion coins were produced, of which some 7.8 billion notes and 40 billion coins were distributed at the beginning of January 2002 to 218 000 banks and post offices, 2.8 million sales outlets, and 302 million individuals in the 12 participating countries. In parallel, a large proportion of the 9 billion national notes and 107 billion national coins in circulation were withdrawn. The success of this huge operation was due to the thorough preparations, the active participation of all sectors involved, and the enthusiasm of the public.
The euro area today
Since the introduction of euro notes and coins in 2002, 19 EU countries have joined the euro area. 340 million Europeans use the euro every day – it is the second most-used currency worldwide. While the UK decided to leave the EU, all EU-27 Member States are legally committed to joining the euro at some stage, with the exception of Denmark. The Danish krone, however, participates since 1999 in the Exchange Rate Mechanism II, where its central exchange rate to the euro is fixed and fluctuates only within a narrow band. The Bulgarian lev is pegged to the euro at a constant rate. Croatia also targets a stable nominal exchange rate with the euro. This is why it is essential to frame specific euro area questions within the broader framework of the European Union, to maximise synergies with existing and future instruments and frameworks.