Economic and Monetary Union

Also see Economic and Monetary Union of the European Union. An economic and monetary union is a single market with a common currency. It is to be distinguished from a mere currency union (e.g. the Latin Monetary Union in the 1800s), which does not involve a single market. This is the fifth stage of economic integration.EMU is established through a currency-related trade pact.
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The Treaty describes the process of achieving economic and monetary union in the European Union in three stages. Stage One of EMU started on 1 July 1990 and ended on 31 December 1993. It was mainly characterised by the dismantling of all internal barriers to the free movement of capital within the European Union. Stage Two of EMU began on 1 January 1994. It provided for, inter alia, the establishment of the European Monetary Institute (EMI), the prohibition of financing of the public sector by the central banks, the prohibition of privileged access to financial institutions by the public sector and the avoidance of excessive government deficits. Stage Three started on 1 January 1999 with the transfer of monetary competence to the ECB and the introduction of the euro.

Economic and monetary union (EMU) is the name given to the process of harmonising the economic and monetary policies of the Member States of the Union with a view to the introduction of a single currency, the euro. It was the subject of one of the two Intergovernmental Conferences (IGCs) which concluded their deliberations in Maastricht in December 1991.

The Treaty provides that EMU is to be achieved in three stages:

•First stage (1 July 1990 to 31 December 1993): free movement of capital between Member States, closer coordination of economic policies and closer cooperation between central banks;
•Second stage (1 January 1994 to 31 December 1998): convergence of the economic and monetary policies of the Member States (to ensure stability of prices and sound public finances) and the creation of the European Monetary Institute (EMI) and, in 1998, of the European Central Bank (ECB);
•Third stage (from 1 January 1999): irrevocable fixing of exchange rates and introduction of the single currency on the foreign-exchange markets and for electronic payments, followed by the introduction of euro notes and coins from 1 January 2002.

The third stage of EMU was launched in eleven Member States, which were joined two years later by Greece. Three Member States have not adopted the single currency: the United Kingdom and Denmark, both of which benefit from an opt-out clause, and Sweden, which does not at present meet all of the criteria regarding the independence of its central bank.

On 1 January 2002 euro notes and coins were introduced in the Member States, gradually replacing the national currencies ("legacy" currencies). On 28 February 2002 the transitional stage of dual circulation of the legacy currencies and the euro came to an end. The euro is now the sole currency for more than 300 million Europeans. The challenges facing the long-term success of EMU are continued budgetary consolidation and closer coordination of Member States' economic policies.

See:

•Convergence criteria 
•European Central Bank (ECB) 
•Intergovernmental Conference (IGC)
•Stability and Growth Pact