Economic and Monetary Union Muhammad Yusra International Relations Dept. Universitas Andalas-2011

the process of harmonising the economic and monetary policies of the Member States of the Union; with a view to the introduction of a single currency, the euro. The single currency has been a long-term project for the EU. Tremendous achievement (after enlargement)

History The Werner Report of 1970, written by Luxembourg’s then Prime Minister Pierre Werner; was the first to specifically discuss the case for a single European currency and coined the term Economic and Monetary Union (EMU). It was the subject of an Intergovernmental Conference (IGC), which concluded its deliberations in Maastricht in December 1991.

Stages First stage (1 July 1990 to 31 December 1993): free movement of capital between Member States, closer coordination of economic policies and closer cooperation between central banks. Second stage (1 January 1994 to 31 December 1998): convergence of the economic and monetary policies of the Member States (to ensure stability of prices and sound public finances) and the establishment of the European Monetary Institute (EMI) and, in 1998, of the European Central Bank (ECB). Third stage (from 1 January 1999): irrevocable fixing of exchange rates and introduction of the single currency on the foreign-exchange markets and for electronic payments. Introduction of euro notes and coins.

The Euro The Treaty of Rome (1957) –Declared a common market as a European objective –Aim: increase economic prosperity and contribute to "an ever closer union among the peoples of Europe" The Single European Act (1986) and the Treaty on European Union (1992) built on this –introduced Economic and Monetary Union (EMU) –laid the foundations for a single currency –name “Euro” was selected in 1995 –in January 1999, the exchange rates of the participating currencies were irrevocably set and Euro area Member States began implementing a common monetary policy –in January 2002, 12 States in the EU introduced the new euro banknotes and coins

The Eurozone Coins and banknotes 1 st used Jan 1, 2002 Cyprus joined in 2008 Slovakia scheduled to join in 2009 Estonia joined in 2011 Sweden is technically obliged to join but the EU has made public that they will not enforce this with regard to Sweden Britain and Denmark have a “derogation” releasing them from having to join

convergence criteria (Maastricht Treaty) Low inflation Low interest rates Low government deficit Low government debt Stable exchange rate (ERM II)

What about Switzerland? Swiss are traditionally suspicious of other countries Swiss tradition of neutrality (WWI & WWII) –self-imposed –permanent –armed In some ways Switzerland is like the US –Nationalistic government not interested in ceding sovereignty –Economic policies are currently designed to protect local industries (esp. agriculture) from foreign competition Initial cost of joining EU (progressive financial redistribution policy would cost the Swiss) Switzerland has embarked on a policy of building bilateral agreements with the EU rather than joining outright

Costs of staying out Export problems –Access to EU markets is not guaranteed Inflation problems –Europeans nervous about the Euro due to expansion of the EU invest in Swiss Francs, inflating the value of the currency and inhibiting Swiss exports Capital flight –High construction costs, expensive labor, and skill shortages already make investment in Switzerland unattractive –Several multinational corporations, such as Roche, Sulzer and Alusuisse, have frozen planned investment projects in Switzerland –Large Swiss companies, including Nestle, are shifting activities out of Switzerland in fear of discrimination by other nations –Already four out of five employees of the top 15 Swiss companies work in other countries Scientific information lag –EU scientific exchange programs accept Swiss citizens only if they fail to fill such exchanges with persons from EU countries Accumulated bilateral agreements and cooperation may create de-facto incorporation in the EU for Switzerland

Reference Recapped from several sources