Реферат: European Monetary Union: Theory, History and Consequences
Реферат: European Monetary Union: Theory, History and Consequences
Taras Shevchenko Kyiv National University
Faculty of Economics
Semester Project
European Monetary Union: Theory, History and Consequences
MA. Amalya Tumanyan
Kyiv 2009
CONTENTS
Introduction
1. What is the European
Monetary Union?
2. History of the EMU
3.Criticisms of the EMU
Summary
INTRODUCTION
A monetary
union is a situation where several countries have agreed to share a single
currency amongst themselves.
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. Whilst all 27 EU
Member States take part in the economic union, some countries have taken
integration further and adopted the euro. Together, these countries make up the
euro area.
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)
-
The
single currency and the euro area
1. WHAT IS
THE EUROPEAN MONETARY UNION?
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 are expected to participate in the EMU. Sixteen 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.
Among the
European states, EMU officially stands for Economic and Monetary Union. Other
countries also use EMU to refer generally to the European Monetary Union. EMU
is the agreement among the participating member states of the European Union to
adopt a single hard currency and monetary system. The European Council agreed
to name this single European currency the Euro. The European states decided
that the EMU and a single European market were essential to the implementation
of the European Union, which was created to advance economic and social unity
among the peoples of Europe and to propel Europe to greater prominence in the
international community.
2. HISTORY
OF THE EMU
The road to EMU
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 against the
background of an increased economic division due to a number of new nation
states in Europe after WWI.
Economic
and monetary union was a recurring ambition for the European Union from the
late 1960s onwards because it promised stability and an environment for higher
growth and employment.
The
road towards today's Economic and Monetary Union and the euro area can be
divided into four phases:
Phase 1: 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.
Phase 2: 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 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.
Phase 3: 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 the Member States, and operated successfully for over a
decade.
This
success provided the impetus for further discussions between the Member States
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.
Phase 4: 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.
The Delors
Report recommended EMU in three stages
The
report indicated that this could be achieved in three stages, moving from
closer economic and monetary coordination to a single currency with an independent
European Central Bank and rules to govern the size and financing of national
budget deficits.
The three stages towards EMU
Stage 1 (1990-1994) |
Complete the internal
market and remove restrictions on further financial integration. |
Stage 2 (1994-1999) |
Establish the European
Monetary Institute to strengthen central bank co-operation and prepare for
the European System of Central Banks (ESCB). Plan the transition to the euro.
Define the future governance of the euro area (the Stability and Growth Pact).
Achieve economic
convergence between Member States. |
Stage 3 (1999 onwards) |
Fix final exchange rates
and transition to the euro. Establish the ECB and ESCB with independent
monetary policy-making. Implement binding budgetary rules in Member States. |
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.
3.Criticisms
of the EMU
Concerns about
the EMU center around loss of national sovereignty for each of the individual
participating states. Some fear that the participating states may not be able
to pull out of a national economic crisis without the ability to devalue its
national currency and encourage exports. Others worry that the participating European
states will be forced to give tax breaks to compete with each other and that
companies may have to lower wages for their employees and to lower prices on
goods that they produce. Because taxes continue to be levied at the national
level and not by the EMU, tax policy cannot be used as a tool to help
individual states that may be experiencing an economic downturn. In this way,
the EMU differs from the United States which has both a single federal monetary
policy and a primarily centralized tax system. In the United States, the
residents of an individual state with a lagging economy can pay less tax and
the residents of another state with a soaring economy can make up some of the
tax deficit. In the EMU, because tax policy is not centralized, the other states
cannot help out an individual participating state that is economically troubled
by shouldering a greater proportion of the tax burden. Also, because the
participating EMU countries vary so much culturally, the labor force in these
countries is not nearly as mobile as between the states of the United States.
Because the labor force is fairly stationary, problems of high unemployment may
persist in certain individual EMU states while other countries may not be able
to fill positions with qualified employees. Finally, some countries (like the
United Kingdom) may fear that joining the EMU may pull their country down to
the economic equivalent of the least common denominator, saddling them with the
economic problems of countries with a less successful economy.
SUMMARY
EMU
is the agreement among the participating member states of the European Union to
adopt a single hard currency and monetary system. The European Council agreed
to name this single European currency the Euro.
Economic and monetary union was a recurring ambition
for the European Union from the late 1960s onwards because it promised
stability and an environment for higher growth and employment.
The
road towards today's Economic and Monetary Union and the euro area can be
divided into four phases:
- Phase 1: From the Treaty of Rome to the Werner Report, 1957
to 1970
- Phase 2: From the Werner Report to the European Monetary
System, 1970 to 1979
- Phase 3: From the start of EMS to Maastricht, 1979 to 1991
- Phase 4: From Maastricht to the euro and the euro area,
1991 to 2002
The
transition to EMU is combined with benefits and costs:
Benefits:
1.
The abolishment of intra-european currency crises as a consequence of
independent national monetary policies under high capital mobility.
2.
A reduction of monetary risks by the pooling of risks and an increase of the
potential for stability within Europe.
3.
A reduction of transactions costs and, as a consequence, an improvement of the
resource allocation.
4.
The avoidance of unnecessary adjustment burdens in the real economy.
5.
The elimination of beggar-my-neighbour-policies by the choice of exchange
rates.
6. The abolishment of market
segmentation due to exchange rates, an increase in market transparency and a
reduction of price discriminations.
Costs:
1.
In the FRG, we cannot choose anymore an inflation rate independently of the
other countries.
2. The exchange rate
instrument is lost as an adjustment mechanism. On one side, this loss is
justified by the fact that the need for exchange rate adjustments will
disappear due to the unified monetary policy in EMU. On the other side, for the
real economy only a knife with two cutting edges gets lost which in addition is
not permamently but only transitorily effective.
EXTERNAL LINKS
1.
EMU: A
Historical Documentation (European Commission)/ http://ec.europa.eu/economy_finance/emu_history/index_en.htm
2.
The
euro (European Commission Economic and Financial Affairs) / http://ec.europa.eu/economy_finance/the_euro/index_en.htm?cs_mid=2946
3.
The
euro and other currency unions in history/ http://samvak.tripod.com/nm032.html
4.
What is
the European Monetary Union? University of Iowa Center for International
Finance and Development / http://www.uiowa.edu/ifdebook/faq/faq_docs/EMU.shtml