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For the concept in general, see economic and monetary union.
In economics, a monetary union is a situation where several countries have agreed to share a single currency amongst themselves. The European Economic and Monetary Union (EMU) consists of three stages coordinating economic policy and culminating with the adoption of the euro, the EU\'s single currency. All member states of the European Union participate in the EMU. Fifteen member states of the European Union have entered the third stage and have adopted the euro as their currency. The United Kingdom, Denmark and Sweden have not accepted the third stage and the three EU members still use their own currency today.
Under the Copenhagen criteria, it is a condition of entry for states acceding to the EU that they be able to fulfil the requirements for monetary union within a given period of time. The 10 new countries that acceded to the European Union in 2004 all intend to join third stage of the EMU in the next ten years, though the precise timing depends on various economic factors. Similarly, those countries who are currently negotiating for entry will also take the euro as their currency in the years following their accession. (See Enlargement of the European Union.) On the 1st of January 2008 Cyprus and Malta joined the EMU.
Prior to adopting the euro, a member state has to have its currency in the European Exchange Rate Mechanism (ERM II) for two years. Denmark, Estonia, Latvia, Lithuania, and Slovakia are the current participants in the exchange rate mechanism.
EMU is sometimes misinterpreted to mean European Monetary Union.
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First ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. For example, already in the League of Nations, Gustav Stresemann asked in 1929 for a European currency (Link) against the background of an increased economic division due to a number of new nation states in Europe after WWI.
A first attempt to create an economic and monetary union between the members of the European Communities goes back to an initiative by the European Commission in 1969, which set out the need for "greater co-ordination of economic policies and monetary cooperation" (Barre Report), which was followed by the decision of the Heads of State or Government at their summit meeting in The Hague in 1969 to draw up a plan by stages with a view to creating an economic and monetary union by the end of the 1970s.
On the basis of various previous proposals, an expert group chaired by Luxembourg’s Prime Minister and Finance Minister, Pierre Werner, presented in October 1970 the first commonly agreed blueprint to create an economic and monetary union in three stages ( Werner plan). The project experienced serious setbacks from the crises arising from the non-convertibility of the US dollar into gold in August 1971 (i.e. the Bretton Woods System) and from rising oil prices in 1972. An attempt to limit the fluctations of European currencies, using a snake in the tunnel, failed.
The debate on EMU was fully re-launched at the Hanover Summit in June 1988, when an ad hoc committee (Delors Committee) of the central bank governors of the twelve member states, chaired by the President of the European Commission, Jacques Delors, was asked to propose a new timetable with clear, practical and realistic steps for creating an economic and monetary union Verdun A., The role of the Delors Committee in the creation of EMU: an epistemic community?, Journal of European Public Policy, Volume 6, Number 2, 1 June 1999 , pp. 308-328(21). This way of working was derived from the Spaak method.
The Delors report of 1989 set out a plan to introduce the EMU in three stages and it included the creation of institutions like the European System of Central Banks (ESCB), which would become responsible for formulating and implementing monetary policy.
The three stages for the implementation of the EMU were the following:
There have been debates as to whether the Eurozone countries constitute an optimum currency area. By contrast with other single currency areas such as the United States, the Eurozone seems to be lacking the same degree of homogenity with regard to a common language, history or culture.
Additionally, there is a significant amount of economic diversity within the economies of the Eurozone. As a result, Eurozone interest rates have to be set for both low-growth and high-growth Euro members. Monetary policy (setting of interest rates to influence economic activity) is a major economic tool used by governments. Economies operating according to the Juglar Business Cycle perform best under different monetary policies if they are not in sync, so it has been argued that a "one-size fits all" monetary policy could not work.
To enable true free movement of goods and capital, significant harmonisation and opening-up of economies would be necessary, but these aims are proving difficult to implement in the real world.
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