|European Parliament Fact Sheets|
5.1.0. The historical development of monetary integration
- The success of the common market calls for convergence of the Member States' monetary policies, and an internal market in the full sense of the term includes monetary union.
1. First period (1957-1969): absence of a European monetary project
The Rome Treaty laid down only minor provisions for monetary cooperation. The six founding Member States of the Community were participants in the Bretton Woods international monetary system, which was characterised by fixed exchange rates and possibilities of adjustment. The creation of a parallel system was unnecessary.
2. Second period (1969-1979): the first efforts towards integration
The demise of the Bretton Woods system, confirmed by the ending of the dollar's convertibility into gold on 15 August 1971, was followed by a general floating of the currencies. With the oil crisis of the early 70s, the European currencies came under even greater pressure. In the face of such general monetary instability, the cause of serious economic and social difficulties, the Member States sought to put in place a framework which could provide a minimum of stability, at least at European level, and which could lead to monetary union.
a. Back in 1969, when the international monetary system was threatening to collapse, the Heads of State and Government had already decided at the Hague Summit that the Community should progressively transform itself into an economic and monetary union.
b. In October 1970, the Werner report (drawn up by the then Prime Minister of Luxembourg) proposed:
c. In 1972 the "snake in the tunnel" narrowed the fluctuation margins between the Community currencies (the snake) in relation to those operating between these currencies and the dollar (the tunnel). To ensure the proper operation of this mechanism, the Member States created in 1973 the European Monetary Cooperation Fund (EMCF) which was authorised to receive part of the national monetary reserves.
d. The results of this mechanism were disappointing. The disruptions provoked by the rise in oil prices caused the economic policies of the Member States in the 70s to react in diverse ways. This led to frequent and sharp fluctuations in exchange rates. There were entrances and exits from the exchange stability mechanism and the snake, originally designed as an agreement of Community scope, was reduced to a zone of monetary stability around the German mark.
e. By the end of 1977, only half of the nine Member States (Germany, Belgium, the Netherlands, Luxembourg and Denmark) remained within the mechanism, the others having allowed their currencies to float freely. The Werner Plan was abandoned the same year.
3. Third period (from 1979): the successful resumption of the integration process
a. Instigated by the German Chancellor Helmut Schmidt and the French President Valéry Giscard d'Estaing, the Brussels Summit of December 1978 decided to set up a European Monetary System (EMS). It aimed to create a zone of monetary stability in Europe by reducing fluctuations between the currencies of the participating countries. It was put into operation in March 1979 (* 5.2.0).
b. The establishment of the internal market led the Community to revive the objective of monetary union. The Hannover European Council (June 1988) pointed out that ‘in adopting the Single Act, the Member States of the Community confirmed the objective of progressive realisation of economic and monetary union'. It entrusted to a committee chaired by Jacques Delors, Commission President, and comprising Frans Andriessen, Commission Vice-President, the Governors of the Central Banks of the twelve Member States and three independent experts, ‘the task of studying and proposing concrete stages leading towards this union'.
c. In April 1989 the report of the Delors Committee envisaged the achievement of EMU in three stages: the objective set for the first stage, between June 1990 and January 1992, was to step up cooperation between central banks; the second stage included the establishment of a European System of Central Banks (ESCB) and the progressive transfer of decision-making on monetary policy to supranational institutions; in the third stage, the national currencies would have their convergence rates irrevocably fixed and would be replaced by the European single currency.
The Madrid European Council of June 1989 adopted the Delors Plan as a basis for its work and decided to implement the first of these stages from 1 July 1990, when capital movements in the Community would be liberalised completely. In December the European Council decided to convene an intergovernmental conference to prepare the amendments to the Rome Treaty in view of EMU.
d. Approved by the European Council of December 1991, the amendments proposed by the intergovernmental conference were incorporated in the Treaty on European Union signed at Maastricht on 7 February 1992. (For the achievement of EMU: * 5.3.0 and 5.4.0) The Treaty's EMU project was based on the general outlines of the Delors Plan but differed from it on some significant points. In particular the second stage did not begin until 1 January 1994 and did not include the transfer of responsibilities for monetary policy to a supranational body but simply the strengthening of cooperation between central banks, replacing the former Committee of Governors with the European Monetary Institute which would be responsible, with the Commission, for the technical preparation of EMU. Establishment of the ESCB was deferred to the third stage.
e. In December 1995 the European Council in Madrid named the single currency the euro, and set 1 January 1999 as the date for the start of the third stage. It also adopted the scenario for introduction of the euro (* 5.3.0).
f. The European Council in Amsterdam in June 1997 adopted the Stability and growth pact, designed to ensure budgetary discipline during the third stage (* 5.3.0).
g. The same European Council adopted the principles and fundamental elements of a new exchange-rate mechanism to regulate relationships between the euro and the currencies of those Union Member States which would not be taking part in monetary union (* 5.2.0).
h. In accordance with the Treaty of Maastricht (* 5.3.0) the European Council in Brussels decided on 2 May 1988, following the recommendation of the Commission and the Economic and Financial Affairs Council ("Ecofin") and Parliament's opinion, that 11 countries — Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain — would take part in the third stage of EMU.
i. On the 1st January 1999 the 11 countries chosen joined the European Monetary Union. Greece has subsequently applied for membership and was admitted. It will officially join the EMU on 1 January 2001.