European Monetary Union



Let's talk about the European Monetary Union. The idea of having an economic and monetary union in Europe came before considering having Europe as a community. Back in 1929, after World War I, the nations were left with severe damage and it was proposed a common currency in order to recover quickly and narrow the division between new and old nations after the war.

It was until October 1970 when the first blueprint to achieve a common currency was presented. It had several setbacks due to the collapse of Bretton Woods in 1971 and the rising of oil prices in 1972. In 1989 the governors of the central banks of twelve nations presented a plan with clear, practical and realistic steps to create an economic and monetary union.

The European Economic and Monetary Union or EMU (mistakenly known as European Monetary Union) has three stages of economic policy ending with the adoption of the euro as currency. All members of the European Community are expected to participate in them:

First Stage:

- Abolition of exchange controls so capital movements have freedom between members.

- Fulfill a number of economic criteria regarding the stability of public finances, inflation rates, interest rates and exchange rates.

Second Stage:

- Establishment of the transition period to adopt the euro.

- Stability between the euro and the national currencies of the countries to join the European Community.

- Establishment of the conversion rates between the euro and the national currencies.

Third Stage:

- Adoption of the euro as the only national and legal currency.

Having one single currency in Europe allows the members of the European Community to reduce the cost of doing business among themselves, stimulate economic growth and reduce unemployment rates. Also, investors have more options to diversify their portfolios bringing more investments within the European zone.

The euro has become one of the main currencies along with the dollar and the yen.

The first countries to adopt the euro and, therefore, complied with the three stages in a satisfactory way during the timetable set back then were (in alphabetical order):

Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

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