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

A deeper and fairer Economic and Monetary Union

Following the outbreak of the economic and financial crisis, the European Union took unprecedented measures to improve the economic governance framework of EMU - such as the strengthening of the Stability of Growth Pact or the adoption of new mechanisms to prevent economic imbalances and better coordinate economic policies.

However, these emergency measures needed to be consolidated and completed in the long-term so as to avoid that a new crisis could affect EMU so strongly. Therefore, the Presidents of four European Institutions – the European Commission, the European Parliament, the European Central Bank and the European Council (as President of the euro summit), and the President of the Eurogroup – in the "Five Presidents Report" laid down a roadmap to deepen the Economic and Monetary Union in two stages as of July 2015 and complete it by 2025 at the latest.

  • 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

In October 2015, the Commission began implementing the "Five Presidents’ Report" by adopting a package of measures. More details, including the full report are accessible on the 10 priorities website of the Commission: A Deeper and Fairer Economic and Monetary Union

Economic governance under EMU

Within 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