Union économique et monétaire (document en anglais)

VIALE Marie

Economic and Monetary Union

Summary

Introduction 2

1. THE BASICS OF THE EMU 2

A. Historical context 2

B. Start of EMU, ideas and goals 3

C. Important Actors 4

2. THE EMU 5

A. Important Goals of the EMU 5

B. Institutions, Rules and norms of the EMU 6

a. Monetary Policy 6

b. Economic Policy 7

C. WHO DETERMINE THE GOALS AND REQUIREMENT OF THE EMU? 8

a. The ECB 8

b. The Euro 8

3. ANALYSIS AND INTERPRETATION 9

A. Analysis interpretation of EMU policy and the Integration and Governance 9

B. Analysis and Interpretation of EMU and five policy modes 10

Conclusion 12

Bibliographie 12

Introduction

A group of people cannot live together without rules and limits. History brought us different models of societies and with each format, mankind tried to get organized and structured. The first model was as a tribe, then as a village, a region, a country, and finally, as a union.

Let us take as an example, one of the youngest models made out of old countries, the European Union. Initially, countries just wanted to protect each other. However, the Union grew bigger and bigger in order to resist to the other world powers, so, it created policies in different areas in order to coordinate and be effective in facing the world’s challenges.

This essay examines the EMU (Economic and monetary Union) policy that allows EU countries to organize and monitor their financial systems and economies. In the first part, it will explain the historical context of the EU and EMU’s creation, the second part will go over, the UEM policy, and in the last part it will analyze the different policy modes described by Helen Wallace and the link between the EMU’s policy and them.

1. THE BASICS OF THE EMU

A. Historical context

After the Second World War, Europe is destroyed: the lack of labor force and the low productivity caused by the War saw the various economies of Europe on the verge of collapse. Between 1946 and 1957, the European countries started the process of reconstruction, and worked to prevent any future world wars.

On September 19th, 1946, Winston Churchill evoked the concept of "the United States of Europe”: that is the creation of a group constituted by several countries being on the European ground, to act in coordination, and to eventually become a superpower.

After the creation of the Council of Europe in 1949; Germany, Belgium, France, Italy, Luxembourg, and Netherlands signed the Treaty of Paris in 1951, which established the European Coal and Steel Community (ECSC). This treaty was pivotal to European countries in starting the process of continental cooperation.

The event which started the process of a unified Europe is the Treaty of Rome (1957). It was signed by Germany, Belgium, France, Italy, Luxembourg and Netherlands. Creating the European Economic Community (EEC) and the European Atomic Energy Community (EAEC) or Euratom. In the Article 105 the coordination of the economic policy of Member States to balance their balance of payments and proposes the help of the Council (Article 108) if these States have difficulties.

After the creation of the EFTA (European Free Trade Association), the OECD (organization of cooperation and development replacing OEEC, in 1960) and the decline of the agreements of Bretton Woods, in December 1969, the Summit of the Hague was held which saw the expansion of the plan of the Economic and Monetary Union (EMU). Following this summit, Denmark, the United Kingdom and Ireland joined the EEC on January 1st, 1973.

B. Start of EMU, ideas and goals

In October 1970, Pierre Werner (Luxemburg Statesman) proposed a plan for the EMU. It should establish more of a specific proposal and create a procedure in stages. In March 1972, the leaders decided to implement the strategy of "snake in the tunnel", that is to say, to limit fluctuations in exchange rates between Member States.

However, in 1979, Member States tried to implement a new policy with the establishment of a European Monetary System (EMS). This system was supposed to work better than the strategy of "snake in the tunnel" because the EMS promoted exchange stability and lower inflation. It is based on the exchange-rate mechanism, that is to say, a system created to reduce the fluctuations in exchange rates.

In 1988, the Council of Europe, asked Jacque Delors (ex-minister of the French economy) to create a new plan for the EMU because Werner’s proposal did not achieve its goals. As a result of the Maastricht Treaty in 1992, three phases were proposed and signed. The first phase was the removal of barriers that do not allow free trade, and the establishment of the political independence of central banks. The second phase was the transition to EMU by the European Monetary Institute. The third phase was the irrevocable fixing of exchange rates and the establishment of the European Central bank (ECB).

The objectives of this Treaty guaranteed the independence of the ECB policy and put in place a procedure prohibiting Member States from having a budget deficit greater than 3% of their respective GDPs.

In the book Policy making in the European Union by Helen Wallace, it is explained that the EMU plan had created intense debate and discussions as the neo-functionalist, intergovernementalist, and other scholars were not of the same opinion .

In the 90s, there was a slowdown in decision-making for the EMU following a fall in economic growth, rising unemployment, and the unification of Germany. This created conflict and cohesion, and the willingness to cooperate was hampered by tensions between Member States.

In 1997, two important actions were taken. The EUROGROUP was created to co-ordinate policies of common interest of the Member States of the EU, also the implementation of the Stability and Growth pact imposing on the States

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