On 1 January 1999 a new currency will come into existence - the Euro. By the middle of 2002 it should have replaced most national currencies within the European Community, bringing about full Economic and Monetary Union.
Before participating in the Single Currency, countries must fulfil a number of conditions:
- inflation no more than 1.5 percentage points above the levels of the three best-performing countries;
- long-term interest rates no higher than 2 percentage points above those of the same three countries;
- a low budget deficit , measured against a reference level of 3% of GDP;
- overall public debt below, or falling towards, a reference level of 60% of GDP;
- a stable exchange-rate within the European Monetary System;
- an independent national Central Bank .
1997 Inflation, interest-rate, debt and deficit statistics for the year - together with the 1998 Budgets and other indicators - will determine which countries have reached "sustainable convergence". 1998 March/April: The Commission in Brussels and the European Monetary Institute in Frankfurt will report. The European Parliament will be consulted, will debate and adopt a resolution. On the basis of these.....
April/May:......and the recommendation of the Economic and Finance Council (ECOFIN), the Heads of State and Government will decide which countries qualify for EMU membership. They will also announce the exchange rates to be used in converting between the participating currencies".
A European System of Central Banks, with the European Central Bank in Frankfurt at its centre, will be established.
1999 1st. January: All the qualifying countries ( 1) will form the "first wave" of full Economic and Monetary Union. Exchange-rates will be irrevocably fixed against each other, and the Euro will come into formal existence( 2). It may be used in accounts, contracts, etc. on a "no compulsion, no prohibition" basis. New public debt will be denominated in Euros. Other EU countries will join EMU as they meet the qualifying conditions. 2002 1st. January (at the latest): Euro notes and coins will come into circulation as legal tender, alongside national currencies.
1 July (at the latest): National notes and coins will be withdrawn from circulation.
( 1) Denmark and the United Kingdom have an option not to join, even if they qualify.
( 2) Its value will be equal to that of the "ECU basket" of national currencies at the time, which will then cease to exist.
The European System of Central Banks (ESCB), consisting of the EU's fifteen national central banks and the European Central Bank (ECB) in Frankfurt, will be responsible for monetary policy.
The Commission will have general responsibility for monitoring economic and fiscal policy, and for making policy recommendations.
The Council of Economic and Finance Ministers (ECOFIN) will have final responsibility for decisions at Community level on fiscal and economic policy; and also for any agreements on the external exchange-rate of the Euro. There should also be an informal Stability Council , consisting of Ministers from the countries participating in the Single Currency, which will discuss economic and fiscal policies in the Euro area.
The European Council (Heads of State or Government) will make the final decisions on participation in the Single Currency.
The European Parliament will
- be the body through which the ESCB and the ECB are democratically accountable;
- monitor and debate the development of economic and fiscal policy .
Parliament's Committee on Economic and Monetary Affairs and Industrial Policy will have special responsibilities in relations with the ECB and ECOFIN. Since April 1992 a Sub-committee on Monetary Affairs has been considereing such issues.
An Economic and Financial Committee consisting of national and Commission officials will help coordinate national policies, replacing the existing Monetary Committee.
Economic policy . All EU Member States, whether using the Single Currency or not, will continue to treat their economic policies as "a matter of common concern". Broad guidelines for each national economy, and for the Community as a whole, will form the basis of policy coordination. Both stable prices and a high level of employment are identified as priority objectives.
Monetary Policy will be the sole responsibility of the European System of Central Banks. Its objectives will be to:
- maintain price stability;
- support the Community's general economic policies, but without prejudice to price stability;
- act within the context of an open market economy and free competition.
Fiscal Policy. All Member States will be under an obligation to avoid excessive government deficits. Those using the Single Currency will, in addition, be subject to:
- a Stability and Growth Pact , which aims for broadly balanced national budgets over the economic cycle and provides for sanctions against countries with persistently large deficits.
- three "golden rules" on the financing of public debt:
- no monetisation (i.e. no paying for a deficit by printing money);
- no bail-out (i.e. no rescue of a government that over-borrows);
- no privileged access (i.e. financial institutions may not be compelled or otherwise induced to fund public debt).
Exchange rates . Member States not within the "first wave" will continue to regard their exchange-rate policies as a matter of common interest. A new Exchange Rate Mechanism will be set up to link their currencies to the Euro. The exchange rate o 2 the Euro against the Dollar, Yen, etc. may be the subject of "general orientations" agreed by the Council of Ministers.
European parliament, Revised 27 April 1998