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Economic and Monetary Union


The decision to form an Economic and Monetary Union (EMU) 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). Launched in 1992, EMU involves a single monetary policy, and a single currency, the euro and the coordination of national economic and fiscal policies. Whilst all 27 EU Member States take part in the economic union, 19 countries have taken integration further and adopted the euro. Together, these countries make up the euro area.

A monetary union requires a sufficient degree of economic convergence for its sustainability. In a context where the euro area is not a federal state and the balance of payments remain national, within EMU, national economic policies are subject to a European coordination and surveillance framework. EU surveillance of the economic policies of its Member States is organised in an annual cycle, known as the European Semester. Adopted in 1997, the Stability and Growth Pact (SGP) was also created to enhance the Treaty provisions on fiscal sustainability. EU countries must meet 2 criteria: their budget deficit must not exceed 3% of gross domestic product (GDP); public debt (government debt & that of public agencies) must not exceed 60% of GDP.

To respond to the COVID-19 pandemic, the general escape clause of the Stability and Growth Pact (SGP) was activated in March 2020, to allow temporary departures from the budgetary constraints that normally apply under the European fiscal framework. In October 2021, the European Commission presented a Communication relaunching the public debate on the review of the EU economic governance framework. The aim is to build a broad-based consensus on the way forward well in time for 2023.

Countries can successfully function in a Monetary Union even with different income levels as long as they avoid excessive macroeconomic imbalances. Following the 2008 crisis, the Macroeconomic Imbalance Procedure (MIP) was introduced in the EU economic framework (2011) to identify and address macroeconomic imbalances and declining competitiveness.

In spite of various improvements in recent years – creation of the crisis management tool (European Stability Mechanism), implementation of the Banking Union…- the economic governance structure of EMU continues to suffer from some weaknesses and imbalances: the convergence trends between Member States have proved partly illusory and financial fragmentation remains a key challenge. Economic policy decisions are subject to too soft coordination at the European level, which create gaps in the implementation of sound economic policies. Against this background and in the context of the COVID economic crisis, further steps are expected to complete the EMU architecture and improve its resilience.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

Eurofi Views Magazine chapters

Strengthening the EMU - February 2024 new

Irene Tinagli - European Parliament | Bertrand Dumont - Ministry of the Economy, Finance and Industrial and Digital Sovereignty, France

Reflections on financial Europe - February 2024 new

Reforming the Stability and Growth Pact - September 2023

Vincent Van Peteghem - Deputy Prime Minister and Minister of Finance, Belgium | Gintarė Skaistė - Minister of Finance of the Republic of Lithuania

What economic governance in the euro area - April 2023

Pierre Gramegna - European Stability Mechanism (ESM) | Vincent Van Peteghem - Minister of Finance, Belgium | Gintarė Skaistė - Minister of Finance of the Republic of Lithuania | Harald Waiglein - Federal Ministry of Finance, Austria

Stability and growth pact reform - September 2021

Katja Lautar - Ministry of Finance, Slovenia | Gintarė Skaistė - Ministry of Finance of the Republic of Lithuania | Harald Waiglein - Federal Ministry of Finance, Austria

The response to the Covid-19 crisis and remaining vulnerabilities in EMU - September 2020

K. Regling - European Stability Mechanism (ESM) - Managing Director

EMU : what next and what else ? - September 2019

Pierre Gramegna - Ministry of Finance, Luxembourg | Vilius Šapoka - Ministry of Finance of the Republic of Lithuania

Viability and future of the Eurozone - April 2019

Pierre Gramegna - Minister of Finance, Luxembourg | Bruno Le Maire - Minister of Economy and Finance, France | Hartwig Löger - Federal Ministry of Finance, Austria | Tuomas Saarenheimo - Ministry of Finance, Finland | Mahmood Pradhan - International Monetary Fund