1. Economic and Monetary Union The EU has as an objective the establishment of the EMU

2. The Institutions The EUROPEAN SYSTEM of Central Banks It comprises the European Central Bank(ECB) and the National Central Banks (NCBs). The basic tasks: to define and implement the monetary policy of the EU/to conduct foreign- exchange operations/to hold and manage the official foreign reserves of the MS/to promote the smooth operation of payment systems. The ESCB is governed by the decision-making bodies of the ECB: the Governing Council and the Executive Board.

3. The European Central Bank Within the ESCB, the ECB has certain defined tasks: to supply of money (it authorizes the issue of euros and sets short-term interest rates for the euro)/to make regulations (on minimum reserves for credit institutions and where the Council provides on the prudential supervision of credit institutions)/it has executive powers (it can instruct the NCBs)/it can impose fines on undertakings/It is to be consulted on all proposed EU or national measures that fall in areas within its responsibilities.

4. The principles Article 130 TFEU regulates the ECB’s independence and accountability. ECB shall not seek or take instructions from EU institutions or from national governments. It has a separate legal personality and organizational autonomy. It has financial and accounting independence (26- 33 of the Protocol). The same principles are applied as regards the national central banks.

5. The Governing Council The Governing Council’s meetings are confidential. The ECB has the power to make or not its deliberations public. The external relations of the euro-zone (Article 219 TFEU). The competence belongs to the Council acting unanimously. The management of exchange rates between the euro and the currencies of the other Ms takes place in the context of Exchange Rate Mechanism II(1999). Participation in the ERM II is voluntary for the non euro- zone MS. The exchange rate can fluctuate within a band, normally set at +/- 15% around the central rate. All other currencies are floating freely against the euro.

6. The excessive deficit procedure As early as 1997 a compromise was agreed where the figure of 3% would not be applied in an exceptionally severe economic downturn. As of 1 December 2009, twenty of Ms have been found to have an excessive deficit. A relative procedure can lead theoretically to the levying of very heavy fines on the national governments. Excessive deficits are either an annual government deficit of more than 3 % of the GDP or a government debt of more than 60% of GDP. (Articles 126 TFEU, 1 of the Protocol).

7. Economic surveillance Ms must coordinate their national policies. They have to treat them as a matter of common concern (Article 121 TFEU). The procedure works by guidelines that are extremely wide-ranging. There are concerning a lot of policy fields (education, environment, employment, social security etc). It is soft law with no strong sanctions and many of the guidelines express medium-terms targets. The effectiveness of the surveillance mechanism was very week.