The decision to form an Economic and Monetary Union was taken by the European Council in the Dutch city of Maastricht in December 1991, and was later enshrined in the Treaty on European Union (the Maastricht Treaty). Economic and Monetary Union takes the EU one step further in its process of economic integration, which started in 1957 when it was founded. Economic integration brings the benefits of greater size, internal efficiency and robustness to the EU economy as a whole and to the economies of the individual Member States. This, in turn, offers opportunities for economic stability, higher growth and more employment – outcomes of direct benefit to EU citizens. In practical terms, EMU means:

  • Coordination of economic policy-making between Member States
  • Coordination of fiscal policies, notably through limits on government debt and deficit
  • An independent monetary policy run by the European Central Bank (ECB)
  • Single rules and supervision of financial Institutions within the euro area
  • The single currency and the euro area

Economic governance under EMU

Within the EMU there is no single institution responsible for economic policy. Instead, the responsibility is divided between Member States and the EU institutions. The main actors in EMU are:

  • The European Council – sets the main policy orientations
  • The Council of the EU (the 'Council') – coordinates EU economic policy-making and decides whether a Member State may adopt the euro
  • The 'Eurogroup' – coordinates policies of common interest for the euro-area Member States
  • The Member States – set their national budgets within agreed limits for deficit and debt, and determine their own structural policies involving labour, pensions and capital markets
  • The European Commission – monitors performance and compliance
  • The European Central Bank (ECB) – sets monetary policy, with price stability as the primary objective and act as central supervisor of financial Institutions in the euro area
  • The European Parliament - shares the job of formulating legislation with the Council, and subjects economic governance to democratic scrutiny in particular through the new Economic Dialogue