Understanding the European Union and Its Monetary Union

1. Introduction: The European Union

Important dates: 7 enlargements:
- UK, Ireland, Denmark (1973)
- Greece (1981)
- Portugal and Spain (1986)
- Finland, Sweden, Austria (1995)
- 10 countries (2004)
- Bulgaria and Romania (2007)
- Croatia (2013)

7 treaties:
1. Treaty of Paris (1950): European Coal and Steel Community
2. Treaty of Rome (1957): EURATOM, EEC, ECSC.
3. Treaty of the European Single Act (1986): the Single Market.
4. Treaty of Maastricht (1991): the Treaty of the EU.
5. Treaty of Amsterdam (1996)
6. Treaty of Nice (2001)
7. Treaty of Lisbon (2009)

1 downsizing: Brexit (2019-?)

Aspects of the European Integration Model - Mechanisms:
- Single market.
- Customs Union.
- Single currency.
- European institutions.
- Interterritorial cohesion policies.
- Common agricultural policy.
- Common budget.

The Single Market: Freedom of Choice
Four freedoms of movement:
- Goods
- Services
- People
- Capital

The single market has led to:
- Significant reductions in the price of many products and services, including airfares and phone calls.
- More choice for consumers.
- 2.8 million new jobs.

Three Main Institutions:
- European Parliament: the voice of the people.
- European Council: the voice of the member states.
- European Commission: common interest.

European Central Bank: Euro Management
Mario Draghi is President of the ECB:
- Ensures price stability.
- Controls the money supply and interest rates.
- Oversees the safety of banks.
- Does not depend on governments.

2. The European Monetary Union

Why the Euro?
- No fluctuation risk and foreign exchange cost.
- More choice and stable prices for consumers.
- Closer economic cooperation between EU countries.
- Coins: one side with national symbols, one side common.

The three stages for the development of the European Monetary Union were:
1. Stage One (July 1990 - December 1993): Abolition of all restrictions; increased cooperation between central banks with respect to monetary policy; removal of obstacles to financial integration; monitoring of national economic policies; coordination of budgetary policy.
2. Stage Two (January 1994 - December 1998): European Monetary Institute; preparatory stage for the final phase of EMU; establishment of the ESCB and progressive transfer of monetary policy to European institutions; narrowing of margins of fluctuation within the exchange rate mechanism.
3. Stage Three (January 1999 - continuing): Fixing of exchange rates between national currencies and their replacement by a single European currency; responsibility for monetary policy would be transferred to the ESCB.

Convergence Criteria for the 3rd Stage of EMU:
1. Inflation: No more than 1.5% over the average inflation of the 3 members with the lowest inflation.
2. Public Deficit:
a) No more than 3% of GDP;
b) Public debt under 60% of GDP.
3. Participation in the European Exchange Rate Mechanism: Currency without severe tensions during 2 years before the “exam”.
4. Interest Rate: For one year before the “exam”, an average interest rate of long-term public debt no more than 2% over the mean interest rate of the 3 members with the lowest inflation.

Convergence Criteria:
- The four convergence criteria are presented in Article 121 (1) of the Treaty establishing the European Community (EC Treaty). They are set out in the Protocol on the convergence criteria referred to in Article 121 of the EC Treaty and reflect the degree of economic convergence that Member States must achieve.
- Each Member State must satisfy all four criteria in order to be able to participate in the third stage of economic and monetary union (EMU). During negotiations, both Denmark and the United Kingdom obtained opt-out clauses from the third stage of EMU.