The European Union’s economic and monetary union was launched by the Maastricht Treaty in 1992. It has two parts – the creation of a common currency, the euro, and coordination of economic and budgetary policies of Member States with the goal of contributing to the realisation of the European Union’s objectives, including growth and employment.

Following the failure of the Lisbon Strategy, which aimed to make Europe “the most competitive and dynamic knowledge economy in the world by 2010”, the European Union is in the process of putting in place the Europe 2020 Strategy.

Context

Since 2010, the European Commissioner for Economic and Monetary Affairs is Olli Rehn (Finland).

Read his biography [FR]

Since January 1st 2009, 16 Member States have adopted the single currency and as such make up the Eurozone.

In order to guarantee the EU’s macroeconomic stability, Member States signed the Stability and Growth Pact in 1997 which is a political commitment on keeping public deficits in check. Along with several directives, the Stability and Growth Pact (SGP) involves Member States avoiding excessive budgetary deficits and strengthening the convergence of economic policies. According to the SGP, the States must, in particular, maintain their public deficit below 3% of GDP and their public debt below 60% of GDP notwithstanding exceptional circumstances.

Eurozone/outside Eurozone

The euro, which entered into circulation on January 1st 2002, was initially the currency of 12 EU Member States. In 2010, 16 Member States belong to the Eurozone.

See the map

However, the economic crisis has seriously altered the situation by increasing Member States’ debts and public deficits. The SGP criteria have thus been temporarily set aside and might even be re-evaluated in parallel with the Europe 2020 Strategy. The European Commission has urged several Member States, including France, to bring their public deficit to under 3% of GDP by 2013.

The euro, although it is experiencing difficulties, still has many advantages. The single currency has enabled members to limit the disastrous consequences of international financial turbulence by providing a stable environment for trade between Member State companies – due, in particular, to the removal of foreign exchange operations and commission.

The economic issues central to the future of the Union’s economic and monetary union are twofold – strengthening monetary union, particularly through creation of a “European economic government” and enlargement of the Eurozone to other EU Member States. 

Economic and budgetary policy

Each year around the month of June, the Member States get together in Council (ECOFIN) to adopt the Broad Economic Policy Guidelines (BEPG), subject to the approval of the European Council. Based on the Lisbon Strategy until the end of 2010, these guidelines prioritise:

• Coordinating economic policies
  Member States must aim for close coordination of their economic policies within the framework of the Stability and Growth Pact.
  
  

• Avoiding public deficits
  The aim of the Stability Pact is to avoid excessive public deficit and public debt. Member States with deficits greater than 3% of their GDP risk facing censure or even sanctions (fines), notwithstanding exceptional circumstances such as the current economic recession.
  
  Furthermore, the European Central Bank, national central banks and Member States are not permitted to give overdrafts or credit to community or national public agencies. However, financial assistance can be give to a State when serious or exceptional circumstances beyond its control lead to major difficulties. 

Monetary policy

The idea of a single European currency came about as a necessary complement to the single market. It means that foreign exchange operations and commissions are no longer required. It provides a stable economic environment for trade between Member State companies and enables consumers to compare prices.

Defined by the Lisbon Treaty, the principal aim of monetary policy (and exchange rate policy) is to “maintain price stability and [...] support the general economic policies in the Union, in accordance with the principle of an open market economy with free competition.

On distingue :

The European Central Bank is made up of different decision-making bodies:



- the Executive Board

-  the Governing Council

- lthe General Council

Find out more [FR]

• The European Central Bank (ECB) has been responsible for implementing monetary policy in the Eurozone since 1999. It is the only body with authority for distributing bank notes and coins. With the entry into force of the Lisbon Treaty, the ECB has become an institution of the European Union. Since November 2003 and for a mandate of eight years, the ECB president is France’s Jean-Claude Trichet.
  
  

• The European System of Central Banks (ESCB) is made up of the European Central Bank and the national central banks of all European Union Member States. It implements monetary policy (by modifying its key interest rates) and manages the official foreign reserves. Totally independent from the European institutions and government, the ESCB is however part of a consultation process with the  Council of Ministers, the European Parliament, the European Commission and informal bodies.
  
  

• The Eurosystem made up of the European Central Banks and national central banks of Eurozone countries.

• The ECOFIN Council of Ministers which brings together the finance ministers of member states can produce, after consultation with the ECB, and on recommendation from the ECB or the European Commission, guidelines on exchange rate policy to third countries while respecting the objective of price stability.
  
  

• The Economic and Finance Committee, made up of representatives from Member States, from the European Commission and from the ECB, monitors the financial and economic situation of the European Union, the movement of capital and payments and provides advice to the European institutions. It also facilitates coordination between Member States and European institutions.
  
  

• The Eurogroup is an informal body made up of finance ministers from Eurozone countries. It is an arena for debate and discussion on the macroeconomic situation of the Member States, the programme for stability, public finances, taxation etc. The president of Eurogroup is Jean-Claude Juncker, Prime Minister of Luxembourg.

Sources

DG Economic and Financial Affairs – European Commission
The Euro: Our Money [pdf] – European Central Bank

F.X. Priollaud et D. Siritzky : Le Traité de Lisbonne, La Documentation française, Paris, 2008.

Mise à jour : 24/03/10