5.1 Short history

The Werner Report of 1970 was an early blueprint of monetary union and proposed a 3-stage move to full EMU, over the period 1971 to 1980. It was endorsed at a Heads of Government meeting in 1982 and led to the following initiatives:

• The "snake", which was an attempt to create a zone of currency stability, was created in 1971. It collapsed in the same year following the collapse of the Bretton Woods system.
• A second attempt to create a zone of currency stability was the "snake in the tunnel". This had effectively collapsed by 1976 (in delayed response to the economic disruption following the 1973 oil crisis). By the mid-1970s there was, therefore, little to show for the ambitious Werner project.

In 1979 the European Monetary System (EMS) was set up with 2 components:

• The European Currency Unit (ECU), which replaced the European Unit of Account (EUA) in 1981 and assumed some embryonic characteristics of a real currency.
• The Exchange Rate Mechanism (ERM), a renewed attempt at a zone of currency stability, which the UK did not join until 1990.

In the late 1980s the Community returned to the idea of Economic and Monetary Union (EMU). In 1989 the Delors report made recommendations for a 3-stage process, though without attaching any timetable:

• Stage 1: cooperation and coordination in economic and monetary fields. It was agreed at the Madrid summit (1989) that stage 1 should start in July 1990.
• Stage 2: laying down the basic institutional and operational rules necessary for the realisation of EMU.
• Stage 3: the move towards irrevocably locked together exchange rates, leading to a single currency.

The Maastricht Treaty (1992) set out a procedure and timetable for EMU as follows:

• Stage 2: to start in January 1994. The European Monetary Institute (EMI) was accordingly set up in 1994.
• Stage 3: to start in January 1999, at the latest. This was also implemented (see below).

The Maastricht Treaty also laid down eligibility "criteria" ("Maastricht convergence criteria") for membership that had to be "passed". They were:

• Inflation, measured by CPI, must be within 1.5% of the EU's 3 best performers over the period of a year.
• Long-term interest rates must be within 2% of the EU's 3 best performers over the period of a year.
• Government debt: excessive debt must be avoided - the Government sector debt/GDP ratio must be no more than 60% (or heading in the "right direction").
• Government borrowing: excessive deficits must be avoided - the Government deficit/GDP ratio must be no more than 3%.
• Exchange rate stability: currencies have to be kept within the narrow ERM bands for at least 2 years.

Between Maastricht and the launch of the euro the following events occurred:

• The European Monetary Institute (EMI) was set up in 1994. It was replaced by the ECB in 1998.
• The name euro was chosen for the single currency in 1995.
• The Stability and Growth Pact (SGP) was agreed at the Dublin summit (December 1996) and adopted at Amsterdam (June 1997). The pact enjoined all parties to engage in prompt and vigorous implementation of the "excessive deficit procedure" (EDP), when necessary. An excessive deficit was defined as one where the government deficit was more than 3% of GDP in any one year. Under the terms of the original SGP member states with excessive deficits would face admonishment, sanctions or even fines. Members were also expected to keep their public debt/GDP ratio at under 60%.
• The EMI specified the regulatory and organizational framework for the European Central Bank (ECB) and the European System of Central Banks (the national central banks of the euro countries that would implement the ECB's monetary policy) in January 1997.
• The ECB was officially inaugurated in June 1998, with Wim Duisenberg as President. On 1 January 1999 it became fully operational, setting the interest rates for the eurozone.

The launch of the euro and subsequent events:

• The euro was launched in January 1999, with 11 countries (Germany, France, Italy, the Netherlands, Belgium, Luxembourg, Spain, Portugal, Austria, Finland and Ireland). See table of conversion rates at the foot of this Fact Sheet.
• Euro notes and coins were launched in January 2002.
• Both Denmark and Sweden have rejected membership by referendum: in September 2000 and September 2003 respectively.
• Greece joined in January 2001 and Slovenia in January 2007.
• Jean-Claude Trichet replaced Wim Duisenberg as President of the ECB in November 2003.
• The Stability and Growth Pact (SGP) was "reformed" in 2005 in response to persistent infringements of the SGP's thresholds by eurozone members. Its two thresholds (3% of GDP for deficits and 60% of GDP for debt) were retained, but the pact's rules were made more "flexible" across a range of areas.
• At an informal Ecofin meeting in September 2004, Jean-Claude Juncker was elected President of Euro group (formerly "Euro-12"), a subset of ECOFIN, the informal meeting of the eurozone's finance ministers. Mr Juncker thus became the first elected and permanent President of the Euro group.
• Mr Juncker's first 2-year mandate ran from 2005-2006. The mandate is renewable once and has been renewed fo 2007-2008. His remit includes speaking for the 13 eurozone member states at meetings of the IMF and the World Bank, and attending the ECB's Governing Council meetings.
• Slovenia joined the eurozone on 1 January 2007, followed by Malta and Cyprus on 1 January 2008.

Euro conversion rates

Source: Dod's Eurosource 2008, Dod's Parliamentary Communications, 2007, updated.

RL, April 2008