Introduction: an Overview of European Monetary Integration

Abstract

The introduction of a single currency covering the majority of European Union (EU) member states is a momentous event which will have profound consequences for people across the Continent and beyond. The Euro will become the currency in which individual citizens are paid and denote the price of all goods, services and labour across the whole Economic and Monetary Union (EMU) zone. Thus, a coin minted in France will be legal tender in Germany, Italy and Belgium, creating a greater transparency of transactions in the process. More importantly, monetary union requires the transfer of monetary and exchange rate policy from each participating nation state to a central authority, in this case the European Central Bank (ECB) based in Frankfurt, which will operate a uniform monetary policy for the entire single currency region. Therefore, Finland, Spain and the Netherlands will each have an identical interest rate, set by the ECB for the benefit of the participating nations as a whole. In addition, to ensure that divergent fiscal policy does not destabilize the currency union, individual countries will be subject to commonly accepted constraints upon their budget deficits which, if they were to rise above a target rate of between 1 and 3 per cent, would result in the country being fined by the EU. Thus, discretionary national macroeconomic management will be largely superseded by rule-based economic co-ordination, which is intended to sustain monetary union whilst creating ever closer economic union between participating member states.KeywordsInterest RateEuropean UnionMonetary PolicyFiscal PolicyWorld Trade OrganizationThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.