EUROPEAN MONETARY

UNION(EMU) 

PREPARED BY:
Akanksha Jain
Ambika Gupta
Prateek Gupta
Syed Mustansir
 INTRODUCTION
►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.
 BRIEF HISTORY
► 1979: European Monetary System (EMS) was
established to link European currencies and prevent
large fluctuations.

It created the European Exchange Rate Mechanism

(ERM)

► 1989: plans were drawn up to realize the EMU in three

stages by a committee headed by Jacques Delors.
► Plans for the EMU were formalized in provisions
within the Maastricht Treaty.

► MaastrichtTreaty entered into force in 1993 with the

goal of creating economic and monetary union by
1999 

► The Treaty set up the conditions, or "convergence

criteria," which each member state in the European
Union must meet before it could join the EMU.
  

► 1995:the name EURO was adopted for the new

currency

► 1998: the 11 initial countries that would

participate in the third stage from 1 January
1999 were selected.
The European central bank  was established
 LAUNCH OF EURO
► On January 1, 1999, the currency exchange rates of the eleven
participating member states became permanently fixed.

► Euro became a legal currency.

► The production of the first Euro coins and banknotes began on

January 1, 1999.

► In 1999 the currency was born virtually and in 2002 notes and
coins began to circulate.
 CONVERGENCE CRITERIA
► Rate of inflation not exceeding from 1.5%.

► Reduce its government deficits to below 3% of its GDP

►  a debt ratio of less than 60% of GDP

► Country had to keep its currency exchange rates with

the limits defined by the ERM for at least two years.

► Country had to keep its interest rates within 2% of the

rates.
 EURO ZONE (MEMBERS)
► Austria   Italy
► Belgium  Luxembourg
► Cyprus  Malta
► Finland  Netherlands
► France  Portugal
► Germany
 Slovakia
► Greece  Slovenia 
► Ireland  Spain. 
► Eleven EU states were part of the initial introduction
in 1999

► Greece joined in 2001  

► Slovenia joined on 1 January 2007

► Cyprus and Malta joined on 1 January 2008

► Slovakia joined on 1 January 2009

► Estonia will join the Euro zone on 1 January 2011

 ADVANTAGES-SINGLE
CURRENCY
 Price transparency.
 Uncertainty caused by Exchange rate fluctuations
eliminated.
 Single currency in single market makes sense.
 Rival to the "Big Two".
 Increased Trade and reduced costs to firms
 Inflation control
 Transaction costs-eliminated.
CRITICISM–SINGLE CURRENCY
 Over estimation of Trade benefits.
 Loss of Sovereignty.
 Deflationary tendencies
 ADMINISTRATION AND
REPRESENTATION
(EURO GROUP)
► Represent politically by finance ministers of
member’s countries.

► Headed by a president

► Current president: Jean-claude Juncker.

 COMPARISON TABLE
Comparison of Euro zone with other economies, 2006

Population GDP % world

Euro zone 317 million €8.4 trillion 14.6%

USA 300 million €11.2 trillion 19.7%

Japan 128 million €3.5 trillion 6.3%

 EUROPEAN CENTRAL
BANK
► It acts as a central bank of EMU countries.
► Headquarters: Frankfurt, Germany
► Established in 1 June, 1998.
► administrating the monetary policy of the 16
EU member states.
►  Jean-Claude Trichet is current president.
 POWERS AND OBJECTIVE
► Right to authorise issuance of banknotes member states can
issue Euro coins but the amount must be authorised by the
ECB beforehand

► Maintain price stability within the Euro zone

► Define and implement the monetary policy for the Euro zone

► Maintaining a stable financial system and monitoring the

banking sector
 CURRENT CRISIS
► Euro zone entered its first official recession in the third
quarter of 2008

► Agreed a bank rescue plan: governments would buy

into banks to boost their finances and guarantee
interbank lending

► Coordination against the crisis was considered vital

► In early 2010, fears of a sovereign debt crisis developed

concerning Euro zone countries such as Greece, Spain,
Ireland, Portugal and Italy.
► In April 2010, the bailout mechanism was triggered,
with €30 billion being loaned to Greece.

► In May, the EU established a full fund of €750 billion

to stabilise the Euro zone as a whole: 440 billion from
Euro zone states, 60 billion from emergency European
Commission funds, and 250 billion from the IMF.

► A special purpose vehicle (SPV) called "European

Financial Stability Facility" (EFSF) with base
in Luxembourg was created. The ESFS will issue debt
on capital markets, backed by guarantees from the Euro
zone states.
 CONCLUSION
► EMU is economic and monetary union made
by some states of European commission.

► The main purpose of this union is to bring

financial stability in its member states.

► European central bank is the main authority

to regulate it.
ANY QUERIES?