Экономические науки/3.Финансовые отношения

Moiseyeva F.A., Posternikova О. О.

Donetsk National University of Economics and Trade

named after Mikhail Tugan-Baranovsky

economic and monetary union in Europe

The idea of establishing an economic and monetary union in Europe goes back more than half a century. It was a vision of the political leaders who, in 1952, founded the European Coal and Steel Community (ECSC), which consisted of six countries – Belgium, Germany, France, Italy, Luxembourg and the Netherlands.

Further steps were taken towards European integration in the 1950s and thereafter. The same six countries established the European Economic Community (EEC) and the European Atomic Energy Community (EURATOM) in 1958. This network of relationships strengthened and deepened over the years, becoming the European Communities (EC) and then, with the adoption of the Maastricht Treaty in 1993, the European Union (EU). The number of member countries increased too. This expansion continued on 1 May 2004, when the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia became the latest members of the European Union.

The conditions to be fulfilled before entering the EU are the Copenhagen criteria. These require the prospective members to have stable institutions guaranteeing democracy, the rule of law, human rights and the respect for and protection of minorities, and to have a functioning market economy as well as the capacity to cope with competitive pressure, in order to be able to take on the obligations of membership, including the aims of political, economic and monetary union.

The first attempt to create an economic and monetary union was described in the Werner Report of 1970, which envisaged three stages to be completed by 1980. However, these first plans for an economic and monetary union were never realised amid the considerable international currency unrest after the collapse of the Bretton Woods system in the early 1970s, and the international recession in the wake of the first oil crisis in 1973.

To counter this instability, the then nine Member States of the EEC created the European Monetary System (EMS) in 1979. Its main feature was the exchange rate mechanism (ERM), which introduced fixed but adjustable exchange rates among the currencies of the nine countries.

In the second half of the 1980s the idea of an economic and monetary union was revived in the Single European Act of 1986, which created a single market. But it was realised that the full benefits of a single market could only be reaped with the introduction of a single currency for the participating countries. In 1988 the European Council instructed the Delors Committee to examine ways of realising Economic and Monetary Union (EMU) .The 1989 Delors Report led to the negotiations for the Treaty on European Union, which established the European Union (EU) and amended the Treaty establishing the European Community. It was signed in Maastricht in February 1992 (so it is sometimes called the Maastricht Treaty) and entered into force on 1 November 1993.

Three stages towards EMU:

I. Single European Market; II. European Monetary Institute; III. European Central Bank (ECB).

On 1 January 2002 euro banknotes and coins became legal tender in the participating countries and by the end of February 2002 national banknotes and coins ceased to be legal tender.

Countries wishing to adopt the euro as their currency must achieve a high degree of "sustainable convergence", stability-oriented economic policies and independent central bank.

12 Member States have adopted the euro. Two Members States have “opted out”. New EU Member States are committed to ultimately adopting the euro.

The individual countries that now comprise the euro area were relatively open economies before they joined the euro area. The size of the euro area makes it comparable with major economies such as the United States and Japan.

The euro area is one of the largest economies in the world, with a population of 312 million in 2004.The European Union as a whole has 25 Member States and a population of 460 million. By comparison, the United States and Japan have 294 and 128 million inhabitants respectively.

Although the euro area can be significantly affected by developments in the global economy, the fact that the euro area has a less open economy means that movements in prices of foreign goods have only a limited impact on domestic prices. However, it is more open than either the United States or Japan.

With the establishment of Economic and Monetary Union (EMU), the EU has made an important step towards completing the internal market. Consumers and firms can now easily compare prices and find the most competitive suppliers in the euro area. Moreover, EMU is providing an environment of economic and monetary stability all over Europe. The introduction of euro banknotes and coins on 1 January 2002 has made travelling simpler within the euro area.

With the birth of the euro, foreign exchange transaction costs and foreign exchange risks were eliminated within the euro area. With a single currency, investment decisions are much easier, as fluctuations in the exchange rate can no longer influence the return on investment across national borders within the euro area.

The launch of the euro was a major step towards the integration of the financial markets in the euro area. The depth and quality of an integrated financial market facilitate the financing of economic growth and thereby the creation of jobs.