Tag Archives: Single currency

EMU@10: successes and challenges after 10 years of Economic and Monetary Union

EMU@10: successes and challenges after 10 years of Economic and Monetary Union

Outline of the Community (European Union) legislation about EMU@10: successes and challenges after 10 years of Economic and Monetary Union

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

EMU@10: successes and challenges after 10 years of Economic and Monetary Union

Document or Iniciative

Communication from the Commission of 7 May 2008 to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank : EMU@10 – successes and challenges after 10 years of Economic and Monetary Union [COM(2008) 238 final – Non published in the Official Journal].

Synthesis

At the end of its first decade, the euro is a success story and represents the most tangible result of European integration. Low and stable inflation and interest rates over the past ten years have boosted investment in the euro area. Fiscal consolidation has continued and job creation has been at record levels. However, output and productivity growth have been lower than in other developed economies, and concerns about income distribution have grown. In the future, EMU faces challenges linked to ongoing globalisation, an ageing population, rising food and energy costs and the effects of climate change. .

Ten years of monetary and economic stability and integration

EMU has fostered economic and market integration by removing exchange rate risks and lowering cross-border transaction costs, helping to develop the single market and integrate product markets. Establishing itself as the world’s second currency after the US dollar, the euro is a powerful catalyst for financial market integration. The Single Euro Payments Area (SEPA) will eliminate differences between national and cross-border retail payments.

A record 16 million jobs were created during the first decade of EMU, while unemployment fell to around 7 %, the lowest in more than fifteen years. In addition, EMU has brought significant benefits to European Union Member States engaged in a catch-up process, by providing an environment of macroeconomic stability and low interest rates coupled with the support of the Cohesion Policy and Structural Funds.

A single monetary policy, conducted by the European Central Bank (ECB), combined with national yet coordinated fiscal policies ensures macroeconomic stability. Currency fluctuation and exchange rate realignments within the euro area have become a thing of the past. Furthermore, monetary policy has cemented long-run inflation expectations: inflation averaged around 2 % in the first decade of EMU, falling from 3 % in the 1990s and 8 to 10 % in the 1970s and 1980s. This has contributed to improving the euro area’s resilience against adverse external developments.

The Stability and Growth Pact (SGP) improved budgetary discipline and the euro-area economy has pursued a faster track of economic and financial integration than the rest of the EU. Supporting macroeconomic stability, fiscal consolidation has been impressive over the past years and has culminated in a deficit of only 0.6 % of GDP in 2007 compared to an average of around 4 % in both the 1980s and 1990s.

EMU’s remaining challenges, amplified by new global trends

Although the first decade of EMU has been a positive picture overall, there are still unfulfilled expectations and remaining challenges, such as globalisation, rising food and energy prices and the ageing population. At around 2 % per annum; potential growth remains too low and there are still substantial differences across countries in terms of inflation and labour costs. At the international level, a clear strategy is needed so that the euro area can project a strong voice in international economic fora in an increasingly globalised world. Finally, the public image of the euro does not fully reflect EMU’s successful economic performance. In some countries, citizens believe that prices have increased significantly because of the euro. Indeed, even if overall inflation was only marginally affected at the time of the changeover, occasional abusive price increases in specific sectors and countries have tarnished the image of the single currency.

To address the challenges for the next decade, it is necessary to build on existing macroeconomic stability while raising potential growth and furthering the welfare of euro-area citizens, ensuring a smooth adjustment capacity as EMU expands to take on new members and protecting successfully the interests of the euro area in the global economy. To do this, the Commission has outlined a three-pillar agenda:

  • Domestic: deepening and broadening macroeconomic surveillance and better integrating structural policies into the overall policy co-ordination process within EMU;
  • External: enhancing the euro area’s role in global economic governance by developing common positions on international issues and by consolidating representation, with the ultimate objective of a single seat for the euro area in the relevant international financial institutions and fora;
  • Promoting effective governance of EMU: putting into practice both agendas requires a more effective system of economic governance.

Background

In May 1998, the Council took the decision to move to the third and final phase of Economic and Monetary Union (EMU) and to introduce the single currency, the euro. Used since 1 January 1999 as book money, euro banknotes and coins were introduced on 1 January 2002 in 12 Member States. At present, 17 out of 27 are part of the euro area.

Practical aspects of introducing the euro

Practical aspects of introducing the euro

Outline of the Community (European Union) legislation about Practical aspects of introducing the euro

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

Practical aspects of introducing the euro

The euro provides numerous advantages for citizens: a single currency for euro zone countries, the same costs for both national and cross-frontier bank transfers, and a stable business environment. The process leading to the single currency started well before euro notes and coins were introduced in the first Member States in January 2002.

PRACTICAL ASPECTS

The citizen and the euro

  • Cross-border payments in euros
  • New legal framework (NLF) for payments

Euro notes and coins

  • Issuance of euro coins
  • National sides and issuance of euro coins
  • Denominations and technical specifications of Euro coins
  • Euro banknotes: denominations, specifications, reproduction, exchange and withdrawal
  • Changes to the national sides of euro coins
  • Common guidelines: the national sides of euro coins

Switching over to euro notes and coins

  • The successful introduction of the euro in Slovenia
  • Practical aspects of the introduction of the euro: review of the situation
  • Green Paper on the practical arrangements for the introduction of the single currency
  • Impact on capital markets
  • The impact on Community policies, institutions and legislation
  • Preparations for public administrations

Information strategy for the euro

  • Information and communication strategy on the euro and EMU
  • Information strategy for the euro
  • Euro information strategy: final stages of implementing EMU

First assessments

  • EMU@10: successes and challenges after 10 years of Economic and Monetary Union
  • Five years of Euro banknotes and coins
  • The euro area in the world economy – Developments in the first three years
  • Review of the introduction of euro notes and coins
  • The introduction of euro banknotes and coins: one year on

HISTORICAL ASPECTS

  • Towards a single currency: a brief history of EMU

First stage: preliminary reforms and beginning of convergence (1 July 1990 – 31 December 1993)

  • The second stage of the EMU
  • Progressive convergence during stage one of EMU

Second stage: preparation by the Member States for EMU (1 January 1994 – 31 December 1998)

  • Prohibition of privileged access to financial institutions
  • Prohibition on the central banks granting credit facilities to public authorities and undertakings
  • Broad economic policy guidelines (1996)
  • Broad economic policy guidelines (1997)
  • Convergence in the European Union in 1996
  • Convergence in the European Union in 1997

Third stage: preparation by the Member States for EMU (from 1 January 1999)

  • Third stage of Economic and Monetary Union

Accession of Cyprus and Malta to euro area

Accession of Cyprus and Malta to euro area

Outline of the Community (European Union) legislation about Accession of Cyprus and Malta to euro area

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Accession of Cyprus and Malta to euro area (2008)

Acts

Council Decision 2007/503/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Cyprus of the single currency on 1 January 2008.

Council Decision 2007/504/EC of 10 July 2007 in accordance with Article 122(2) of the Treaty on the adoption by Malta of the single currency on 1 January 2008.

Summary

In these two Decisions, the Council states that Cyprus and Malta satisfy all the conditions required to adopt the euro:

  • Cyprus and Malta satisfy the requirements established by the convergence criteria: price stability, the government budgetary position, participation in the exchange mechanism of the European monetary system, the existence of a satisfactory long-term interest rate;
  • Cyprus and Malta have national legislation which is compatible with the introduction of the euro.

Consequently, the Council chose the date of 1 January 2008 for these two Member States to adopt the euro.

Procedure

During its meeting of 10 July 2007, the Economic and Monetary Affairs Council gave the go-ahead for the introduction of the euro in Cyprus and Malta. Prior to that, the European Commission had established in the convergence reports that both States fulfilled the membership criteria for the Economic and Monetary Union.

These Decisions are addressed to the Member States. They stipulate that Cyprus and Malta fulfil the necessary conditions for the adoption of the single currency. They repeal the derogations in favour of the two countries referred to in Article 4 of the 2003 Act of Accession.

The Council decides which Member States fulfil the necessary conditions for the adoption of the euro, i.e. compatibility of their national legislation with the Community acquis and the convergence criteria set out in Article 140 of the Treaty on the Functioning of the EU (formerly Article 121 of the EC Treaty). The two proposals presented by the Commission on 16 May 2007 (Cyprus: CNS/2007/0090 and Malta: CNS/2007/0092) resulted in the present Decisions.

REFERENCES

Act Entry into force Deadline for transposition in the Member States Official Journal
Decision 2007/503/EC

Date of notification

OJ L 186 of 18.7.2007

Decision 2007/504/EC

Date of notification

OJ L 186 of 18.7.2007

RELATED ACTS

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank of 18 April 2008 on the introduction of the euro in Cyprus and Malta [COM(2008) 204 final – Not published in the Official Journal].

The Commission presents the results of the introduction of the single currency in Cyprus and Malta. It draws lessons from these for future changeovers to the euro (link to new summary EC000) in European Union Member States.

Conversion rates

Conversion rates

Outline of the Community (European Union) legislation about Conversion rates

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Conversion rates

Document or Iniciative

Council Regulation (EC) No 2866/98 of 31 December 1998 on the conversion rates between the euro and the currencies of the Member States adopting the euro [See amending acts].

Summary

This Regulation sets the conversion rates between the euro and the former national currencies of the Member States. These rates were adopted on 31 December 1998 when the first eleven Member States adopted the euro (Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland).

This Regulation has subsequently been amended several times to adopt the conversion rates of new Member Sates joining the euro area:

  • Greece in 2001;
  • Slovenia in 2007;
  • Cyprus and Malta in 2008;
  • Slovakia in 2009;
  • Estonia in 2011.

According to Article 140 of the Treaty on the Functioning of the EU, the conversion rates between the euro and the currencies of the Member States are set by the Council of the EU. It decides with the unanimity of the Member States whose currency is the euro and the Member State concerned, acting on a proposal from the Commission and after consulting the European Central Bank. Moreover, the conversion rates are irrevocably fixed:

1 euro Exchange Rate Former national currency
40.3399 Belgian francs
1.95583 German marks
15.6466 Estonian kroon
340.750 Greek drachma
166.386 Spanish pesetas
6.55957 French francs
0.787564 Irish pounds
1936.27 Italian lire
0.585274 Cyprus pounds
40.3399 Luxembourg francs
0.429300 Maltese liri
2.20371 Dutch guilders
13.7603 Austrian schillings
200.482 Portuguese escudos
239.640 Slovene tolars
30.1260 Slovakian kroon
5.94573 Finnish marks

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2866/98

1.1.1999

OJ L 359 of 31.12.1998

Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Regulation (EC) No 1478/2000

1.1.2001

OJ L 167 of 7.7.2000

Regulation (EC) No 1086/2006

1.1.2007

OJ L 195 of 15.7.2006

Regulation (EC) No 1134/2007

1.1.2008

OJ L 256 of 2.10.2007

Regulation (EC) No 1135/2007

1.1.2008

OJ L 256 of 2.10.2007

Regulation (EC) No 694/2008

1.1.2009

OJ L 195 of 24.7.2008

Regulation (EU) No 671/2010

1.1.2011

OJ L 196 of 28.7.2010

Monetary law of participating Member States

Monetary law of participating Member States

Outline of the Community (European Union) legislation about Monetary law of participating Member States

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Monetary law of participating Member States

Document or Iniciative

Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro [See amending acts].

Summary

This Regulation defines the monetary law of the Member States which have adopted the euro as the single currency and describes the different stages relating to the introduction of the euro in a Member State.

After adopting the euro, a Member State is able to benefit from a transitional period or a phasing-out period in order to facilitate the changeover to the single currency. The euro is introduced in the Member State and comes to replace the former national currency permanently.

Transitional period

The transitional period lasts for a maximum of three years. It starts on the euro adoption date and ends on the Member State’s cash changeover date:

  • the euro adoption date is the date from which the Member State enters the third stage of economic and monetary union. This stage is the subject of a Council decision authorising the Member State concerned to join the euro.
  • the cash changeover date is the date from which the euro becomes legal tender in the territory of the Member State. Euro banknotes and coins may then be used in the Member State concerned.

The aim of the transitional period is to allow a smooth transition between the national currency of the Member State and the euro. During this period, the monetary law of the Member State which was in force before the adoption of the euro continues to apply. The national currency therefore retains its status of legal tender in the territory of the Member State and may continue to be used.

During the transitional period, the Member State also has the opportunity to prepare for the changeover to the euro in the country. The euro may therefore start to be used for certain financial transactions:

  • banking transactions: for example, a bank receiving a payment in the euro unit will have to carry out the necessary conversion (according to the conversion rate) to credit an account denominated in the national monetary unit (and vice versa);
  • the outstanding public debt and public expenditure of the Member State: the amounts of this expenditure may be expressed in euros;
  • certain markets, particularly in the field of securities and commodities: the national currency unit may be replaced in transactions by the euro unit.

However, the transitional period is not mandatory. The euro adoption date may therefore coincide with the cash changeover date. In such a case, the Member State must apply a phasing-out period all the same.

Phasing-out period

The phasing-out period lasts for up to one year. It applies only to Member States which have not had a transitional period between the adoption of the euro and the cash changeover date.

The aim of the phasing-out period is to substitute the euro for the national currency in a gradual manner. During this period, the basic unit must be the euro but it is still possible to refer to the former national currency unit.

Substitution of the euro for the national currency

With effect from the cash changeover date, the euro acquires the status of legal tender and becomes the official currency of the Member State.

The euro is then substituted for the national currency at the conversion rate determined by the Council. In addition, euro banknotes and coins become the only banknotes and coins which have the status of legal tender in the Member State. Any reference to the national currency units made before the cash changeover is therefore regarded as a reference to the euro according to the conversion rates.

It should be noted that the former national currency may still be used after the cash changeover during a ‘dual circulation’ period which may not exceed six months.

Euro banknotes and coins

The euro will become the unit of account of the European Central Bank (ECB) and of the national central banks of the participating Member States. The ECB and the national central banks will also be authorised to put euro banknotes and coins into circulation. These banknotes and coins shall be the only banknotes and coins which have the status of legal tender in the euro zone.

Participating Member States will also be responsible for combating counterfeiting and falsification of euro banknotes and coins.

Adapting the Regulation to enlargements of the euro zone

This Regulation will be amended each time a new Member State adopts the euro. It lists the Member States participating in the euro zone in an annex and states the euro adoption date and the cash changeover date for each Member State.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Regulation (EC) No 974/98

1.1.1999

OJ L139 of 11.5.1998

Amending acts Entry into force Deadline for transposition in the Member States Official Journal

Regulation (EC) No 2596/2000

1.1.2001

OJ L 300 of 29.11.2000

Regulation (EC) No 2169/2005

18. 1.2006

OJ L 346 of 29.12.2005

Regulation (EC) No 1647/2006

1.1.2007

OJ L 309 of 9.11.2006

Regulation (EC) No 835/2007

1.1.2008

OJ L 186 of 18.7.2007

Regulation (EC) No 836/2007

1.1.2008

OJ L 186 of 18.7.2007

Regulation (EC) No 693/2008

1.1.2009

OJ L 195 of 24.7.2008

Regulation (EU) No 670/2010

1.1.2011

OJ L 196 of 27.8.2010

Third stage of Economic and Monetary Union

Third stage of Economic and Monetary Union

Outline of the Community (European Union) legislation about Third stage of Economic and Monetary Union

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

Third stage of Economic and Monetary Union

Economic and Monetary Union (EMU) is a process which aims to harmonise the economic and monetary policies of the European Union (EU) Member States. This process comprises three phases:

  • Phase No 1 (from 1 July 1990 to 31 December 1993): the free movement of capital between Member States;
  • Phase No 2 (from 1 January 1994 to 31 December 1998): coordinating Member States’ monetary policies and strengthening cooperation between the Member States’ national central banks;
  • Phase No 3 (from 1 January 1999): the gradual introduction of the euro and implementation of a single monetary policy under the responsibility of the European Central Bank (ECB).

The first two stages of EMU have been completed. The third and final stage is currently underway. It specifically concerns the introduction of the euro in the Member States. At present, 17 Member States have adopted the euro as a single currency. These States form the “euro area”.

Transition to the euro

Before being able to join the third phase of EMU, a Member State must first meet a number of economic and legal requirements.

The economic requirements are called the convergence criteria. The objective is to ensure that the Member State has a stable economy and financial situation in order to preserve the stability of the euro area.

According to the legal requirements, the national law must be compatible with the Treaty, particularly on the points relating to the national central bank and the currency.

When a Member State meets all the requirements, it is authorised to participate in the third phase of EMU and to adopt the euro as a single currency. The euro then replaces the former national currency and becomes the official currency of the Member State.

European Central Bank

The European Central Bank (ECB) has an essential role in EMU. It is the ECB that draws up the monetary policy of the Member States in the euro area. It also has the sole power to authorise the issue of euro banknotes. Furthermore, Member States may issue coins but the ECB must first authorise the annual amount to be issued.

The first Member States in the euro area

3 May 1998 is an historic date with regard to the launch of the 3rd phase of Economic and Monetary Union. On this date, the Council adopted a Decision acknowledging that 11 Member States had fulfilled the necessary conditions to adopt the single currency on 1 January 1999 (Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland).

The euro was then introduced in two stages:

  • 1 January 1999: the euro was introduced as scriptural money and the conversion rates with the former national currencies were fixed. The former national currencies thus became non-decimal sub-divided units of the euro;
  • 1 January 2002: euro coins and banknotes were introduced in the Member States. European citizens and businesses could then make their fiduciary payments in euros.

Greece, which did not fulfil the convergence criteria in 1998, requested a re-evaluation of its situation in 2000. The Commission then delivered a favourable opinion and Greece officially entered the 3rd phase of EMU on 1 January 2001.

Enlargements of the euro area

In principle, all EU Member States are supposed to join the 3rd phase of EMU and hence adopt the euro (Article 119 of the Treaty on the Functioning of the EU). However, certain Member States have not yet fulfilled the necessary economic and financial conditions. These Member States receive provisional derogations until they are able to join the euro area. Furthermore, Denmark and the United Kingdom have an exemption from participating in the euro (see below).

At least every two years, the Commission and the ECB assess the progress made by those Member States with derogations from the convergence and legal requirements. If they deliver a favourable opinion on the Member State’s ability to join the 3rd phase of EMU, the Council then adopts a decision on the Member State’s membership of the euro.

On the basis of this procedure, the euro area has been enlarged by several Member States:

  • Slovenia, on 1 January 2007;
  • Cyprus and Malta, on 1 January 2008;
  • Slovakia, on 1 January 2009;
  • Estonia, on 1 January 2011.

Currently, 17 of the 27 Member States have the euro as a single currency.

Exemptions

The United Kingdom and Denmark notified their intention not to join the 3rd phase of EMU and hence not to adopt the euro. These two States therefore have an exemption from participating in EMU. The exemption arrangements are detailed in the Protocolsconcerning these two countries which are annexed to the EU’s founding Treaties. Furthermore, the United Kingdom and Denmark reserve the option to end their exemption arrangements and to apply to join the 3rd phase of EMU.

Accession by Estonia to the euro

Accession by Estonia to the euro

Outline of the Community (European Union) legislation about Accession by Estonia to the euro

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Institutional and economic framework of the euro

Accession by Estonia to the euro (2011)

Document or Iniciative

Council Decision 2010/416/EU of 13 July 2010 in accordance with Article 140(2) of the Treaty on the adoption by Estonia of the euro on 1 January 2011 [Official Journal L 196 of 28.7.2010].

Summary

In this Decision, the Council states that Estonia fulfils all the necessary conditions for the adoption of the euro:

  • Estonia fulfils the requirements established by the convergence criteria: price stability; the government budgetary position; participation in the exchange-rate mechanism of the European Monetary System; a satisfactory long-term interest rate;
  • Estonia’s national legislation is compatible with the introduction of the euro.

Consequently, Estonia will adopt the euro on 1 January 2011.

Price stability

Member States’ price performance must be sustainable. In order to fulfil this criterion, the annual inflation rate of the Member State must be below a reference value. This value is the average of the annual inflation rates of the three best performing Member States in terms of price stability. If the inflation rate of a candidate Member State does not exceed the reference value by more than 1.5 %, and if their performance in terms of price stability is considered to be sustainable, the criterion of price stability is fulfilled.

The Council notes that the average annual inflation rate in Estonia calculated in March 2010 (-0.7 %) is well below the reference value (0.3 %) and its performance in terms of price stability is considered to be sustainable.

Government budgetary position

Estonia does not have an excessive budget deficit. The government budgetary position of the country is therefore satisfactory and enables the euro to be introduced.

Participation in the exchange-rate mechanism of the European Monetary System

This mechanism establishes a central exchange rate between the euro and Member States’ national currencies, and allows for moderate fluctuations around the central rate. Each country applying to adopt the euro must have participated in this exchange rate mechanism for at least two years without having been subject to serious tensions as regards the rate of their currency.

In line with the requirements of the Treaties, the Estonian kroon joined this exchange rate mechanism in June 2004 and was not subject to serious tensions during the two-year application assessment period.

Long-term interest rates

Long-term interest rates are calculated on the basis of the interest rates for long-term bonds issued by Member States. However, the Council notes that the level of public debt is very low in Estonia and there is therefore no appropriate long-term interest rate available to analyse the sustainability of Estonia’s convergence.

The Council therefore relied on a qualitative analysis of different economic and financial indicators as well as Estonia’s fiscal policy track record and the flexibility of its economy in order to check compliance with the long-term interest rate criterion.

National legislation

In addition to having to fulfil convergence criteria, the national legislation of a Member State that is applying to join the euro mechanism must also be compatible with the introduction of the single currency.

In this case, the Council notes that Estonia’s internal legislation does not pose any obstacle to the introduction of the euro. It is compatible with the Statutes of the European Central Bank and the European System of Central Banks (ESCB). The ESCB is composed of the European Central Bank and the central banks of Member States. The main objective of the ESCB is to maintain price stability.