Economic and Monetary Union
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.
Contributions to the policy debate
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Eurofi policy notes
Strengthening the Economic and Monetary Union - September 2022
Reforming the Stability and Growth Pact - September 2022
The euro and its future - September 2022
Reforming the Stability and Growth Pact - February 2022
A framework for a successor to the Stability and Growth Pact - September 2021
Are sovereign debts sustainable in the EU ? - April 2019
Remarks on the future of the European Monetary Union - September 2018
Ensuring a viable EMU: are we on the right track? - September 2018
Restoring capital mobility in the euro area - September 2018
Deepening the EMU: How and when? - September 2017
How can economic cohesion be achieved and maintained in a heterogeneous currency area with a low degree of federalism? - September 2015
Exchange of views : Reviewing SGP and filling gaps in the EMU architecture - Prague Financial Forum - September 2022
How to improve Economic and Monetary Union - Paris High Level Seminar - February 2022
Reforming the Stability and Growth Pact - Paris High Level Seminar - February 2022
Reforming the Stability and Growth Pact - Ljubljana Financial Forum - September 2021
Priorities for fostering investment in the EU - Lisbon Virtual Seminar - April 2021
Risk sharing in EMU - Helsinki Financial Forum - September 2019
Viability and future of the Eurozone - Bucharest High Level Seminar - April 2019
Public and private
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