III. Economic integration

The first attempt to create an economic and monetary union was described in the Werner Report of 1970, which envisaged three stages to be completed by 1980. However, these first plans for an economic and monetary union were never realized amid the considerable international currency unrest after the collapse of the Bretton Woods system in the early 1970s, and the international recession in the wake of the first oil crisis in 1973. To counter this instability, the then nine Member States of the EEC created the European Monetary System (EMS) in 1979. Its main feature was the exchange rate mechanism (ERM), which introduced fixed but adjustable exchange rates among the currencies of the nine countries.

In the second half of the 1980s the idea of an economic and monetary union was revived in the Single European Act of 1986, which created a single market. But it was realized that the full benefits of a single market could only be reaped with the introduction of a single currency for the participating countries. In 1988 the European Council instructed the Delors Committee to examine ways of realizing Economic and Monetary Union (EMU). The 1989 Delors Report led to the negotiations for the Treaty on European Union, which established the European Union (EU) and amended the Treaty establishing the European Community. It was signed in Maastricht in February 1992 (so it is sometimes called the Maastricht Treaty) and entered into force on 1 November 1993.

Three stages towards EMU:

I. Single European Market

II. European Monetary Institute

III. ECB and the euro

Progress towards EMU in Europe took place in three stages. Stage One (1990–1993) was characterized mainly by the full achievement of a single European market through the dismantling of all internal barriers to the free movement of persons, goods, capital and services within Europe.

Stage Two (1994–1998) started with the creation of the European Monetary Institute, and was dedicated to the technical preparations for the single currency, the avoidance of excessive deficits, and enhanced convergence of the economic and monetary policies of the Member States (to ensure stability of prices and sound public finances). Stage Three began on 1 January 1999 with the irrevocable fixing of exchange rates, the transfer of monetary policy competence to the ECB and the introduction of the euro as the single currency. On 1 January 2002 euro banknotes and coins became legal tender in the participating countries and by the end of February 2002 national banknotes and coins ceased to be legal tender.