Monica has taught college-level courses in Tourism, HR and Adult Education. She has a Master's in Education and is three years into a PhD.
The European Union and the European Monetary Union
We so often hear the phrase, 'I want world peace', but how do we actually go about accomplishing this enormous task? We all may contribute in our own ways, but today we are going to talk about cooperation on the grand scale, cooperation among countries. You see, after the First World War, a group called the League of Nations was formed in Europe. What was its purpose? To promote world peace.
The League of Nations wanted European countries to act together so that they could rebuild after the war and protect themselves from future wars. This would mean having one economy, where countries would be governed by the same policies. It also meant that countries would rebuild and grow using the same monetary system. Hence, the idea for the European Monetary Union, also called the Economic and Monetary Union (EMU). It wasn't until 1990 that one economy, now known as the European Union (EU) was officially established. The European Monetary Union played a critical role in its development.
Before we explain EMU we must first define the European Union (EU). The EU is a political and economic union of European countries. In discussing the EU, members of the EU are referred to as states. The states (remember, they are the countries) use their resources and pay taxes to support one main economy. This union is built on the foundations of stability, prosperity, and better living standards. And of course, world peace!
The European Monetary Union (EMU) is a system of policies that manages the budget, and more importantly, facilitates the admission of new members into the EU. Each state is required to give a percentage of money to the EMU. That money is used for international trade, rural development, environmental protection, border protection, and promoting human rights. The money is also used to assist members when they are in financial and economic trouble. Greece is a recent example; the EU gave billions of dollars to help that country repay debt and recover from a recession. When new states join the EU, the EMU contributes to the three-stage process (which we'll talk about later). The process ultimately leads to two things: A state's financial contribution to the EU and its implementation of the Euro currency.
After the League of Nations was formed in 1929, other groups were formed to promote one economy, and eventually, the European Union. In 1951, six countries known as the Inner Six formed the European Coal and Steel Community (ECSC) to encourage peace in Europe by creating a common market for coal and steel. In the 1960s, the European Commission was founded to legislate agreements and new communities like the ECSC. It wasn't until the 1970s that a financial plan was established to facilitate these agreements and budgets among communities. In 1990, a three-stage process was established to shape the EU and the EMU into the organizations that exist today.
Three Stages to EU State Membership - History Continued
In 1990, the Copenhagen Criteria was created to set the rules for EU membership. To join the EU, countries must have a functioning economy, democratic governance and a belief in human rights. These rules still apply. At the same time, the EMU played a big role. You see, before 1990 some countries had limitations on how they could trade with other European countries. Once they joined the EU, those restrictions were eliminated. So the EMU had to create and implement new monetary policies for open trade. Before the EU, each country had its own inflation rate, interest rates, and exchange rates. Post EU, countries still had their own rates but also contributed to the solidarity rates of the EU. Which means that the EMU is responsible for monitoring both the individual member's economic stability and the EU's stability as a whole.
By 1994, 11 countries were members of the EU. The European Monetary Institute, which would later become the European Central Bank in 1998, was established to create a unified monetary system. This time also marked the development of the new currency, the Euro. After 1999, the EU had its own currency, and countries would begin to replace their currency with the Euro. This stage was a critical stage for the EMU because it had to centralize banking among members and create a single monetary policy for the Euro. It also had to start preparing for how the new monetary system would exchange and compete with other European countries and the rest of the world.
Stage three was used to adjust and fix exchange rates. As new members joined, the rates would change based on the economic stability and wealth of the country. At this stage, the EMU had established a smooth centralized banking system so the day a country joined, its central bank automatically entered the Euro system.
EMU in the Present Day
As of 2015, the EU has 28 states operating as one economy. Everyday, nearly 340 million Europeans use the Euro and the EMU continues to ensure a stable and prosperous monetary system. What's interesting is that not all members of the EU use the Euro and some countries not in the EU use the Euro, serving as a challenge for the EMU. Let's look at what countries are members of the EU and what countries use the Euro.
The following are the countries in the Eurozone (members of the EU that use the Euro). In 2014, the Eurozone outperformed the US in the 4th quarter.
The following nations are EU members that do not use the Euro:
And finally, here are European countries that use the Euro but are not part of the EU:
|Andorra||Monaco||San Marino||Vatican City|
As you can see, the EMU was key in the development of the EU and the Euro currency. It created a single monetary system and unified central banking. The EMU facilitates new EU membership to introduce new economies that will join other states in serving as one strong economy. It's a monetary system that allows states to operate as one economy with the purpose of economic growth, peace and stability. It also monitors individual member performance to predict changes in a member's economy that would influence the European Union's economy as a whole.
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