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International Financial Markets: European Monetary Union

2684 words - 11 pages

Critically analyse the current state of the European Monetary Union.

The European Monetary Union or the European Economic and Monetary Union (EMU) is the successor to its predecessor: The European Monetary System, and attempts to deliver an economic system which is unified and cohesive for all the members of the European Union. Perhaps the most notable and drastic change implemented under this systematic collection of policies is the adoption of the Euro currency over the national currencies of the member states out of which only the United Kingdom and Denmark have chosen to not follow in the footsteps of their fellow member countries.

The European Monetary Union is essentially a ...view middle of the document...

In laymen terms, the Economic and Monetary Union, a policy regulated by the European Central Bank which is also independent, implies at price stability, through the member states undergoing coordinated economic policy formulation. Such a movement would also include fiscal policies, Government limitations on debts and deficit coordination, and most importantly the formulation and utilization of a single currency unit in the Euro area.

To understand the EMU it is important to also understand the form of economic governance within the policy as it does not ascertain a single institute as the main proponent as responsible for the policy. Instead in a truly democratic measure the responsibility is spread and divided between the European Union Institutions and between member states. It is an advanced part of the economic integration process, where after preferential trading areas have been accepted, free-trade regions being established alongside customs union and a single market has been formulated, an economic and monetary union would be regulated in order to achieve total economic integration.

In this perspective one of the major achievements of the EMU was the adoption of the Euro on the 1st of January in 1999 and a decade later a population even greater than that of the United States had adopted the Euro as their own in 19 European Countries with a population of over 330million citizens. The Euro consists of a 24.4% share of the global foreign exchange reserves second to only the United States Dollar and with a global proportion of over 59 countries having either indirectly or directly connected their currency to the Euro (Artis, Nixson, 2001). Perhaps the greatest achievement of having the member states give up on their own currencies and adopt the Euro as their own was to unite the destinies of all the member states to a greater extent which requires from them solidarity and mutual respect. The unique aspect in the policy is in the fact that while monetary policy is decided through the intervention at European Level, economic and fiscal policy remains in the governance of the member state within its own borders. Thereby creating a need to adopt policies which are in the common interest (Official Journal of the European Union, 2006).

Currently participation wise, there seems to be 27 member nations participating in the European Monetary Union, depending on their varying degrees of integration. On this note, the EMU was established through three main stages.

Stage 01: 1st July 1990
This stage focused on the capital transactions being conducted in complete freedom where central banks are encouraged to participate resulting in increased co-operation and the free use of the European Currency unit the predecessor of the Euro.

Stage 02: 1st January 1994
The actual formulation of the European Monetary Institute alongside the total sanctioning of central bank credit grants to the public sector. This was part of the movement to...

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