ECONOMIC AND MONETARY UNION

ByTEJASWINI(13031E0005)

K.SHEKHAR(13031E0016)

ECONOMIC AND MONETARY UNION Economic and Monetary Union (EMU)

represents a major step in the integration of EU economies. It involves the coordination of economic and fiscal policies, a common monetary policy, and a common currency, the euro.

ECONOMIC AND MONETARY UNION The European Monetary System (EMS) was

the pioneer of Economic and Monetary Union(EMU), which led to the establishment of the Euro. It was a way of creating an area of currency stability throughout the European Community by encouraging countries to co-ordinate their monetary policies.

WHEN EMU STARTED? The decision to form an Economic and

Monetary Union was taken by the European Council in the Dutch city of Maastricht in December 1991

The Treaty of Maastricht laid down a set of criteria to be met by member states if they were to qualify for the EMU

CRITERIA Curbing inflation Cutting interest rates Reducing budget deficits to a maximum of

3% of GDP Limiting public borrowing Stabilising the currency’s exchange rate

THREE STAGE PROCESS The Maastricht Treaty laid down the three-

stage process in which EMU was established. First stage (1st Jul 1990)

Second stage(1st Jan 1994)

Third stage(1st Jan 1999)

STAGE ONE OF EMU Complete freedom for capital transactions Increased co-operation between central

banks Free use of the ECU (European Currency Unit,

forerunner of the €) Improvement of economic convergence

SECOND STAGE OF EMU Establishment of the European Monetary

Institute (EMI) Ban on the granting of central bank credit Increased co-ordination of monetary policies Strengthening of economic convergence Process leading to the independence of the

national central banks, to be completed at the latest by the date of establishment of the European System of Central Banks;

THIRD STAGE OF EMU Irrevocable fixing of conversion rates Introduction of the euro Conduct of the single monetary policy by the

European System of Central Banks Entry into effect of the intra-EU exchange

rate mechanism (ERM II) Entry into force of the Stability and Growth

Pact

WHO DOES WHAT IN EMU? The management of Economic and Monetary

Union involves many actors with different responsibilities. As well as the governments and central banks of the Member States, the Council, the European Commission, the European Parliament and the European Central Bank all have roles to fulfill. The management of EMU involves three main areas of macroeconomic policy-making: monetary policy, fiscal policy and economic policy coordination.

THE EURO ZONE

SOURCE European Central Bank Wikipedia