|European Monetary Union|
|Founded||Jan. 1, 1999|
|Products||Agreement to adopt a single hard currency and monetary system|
The European Monetary Union (EMU) is the agreement among the participating member states of the European Union to adopt a single hard currency and monetary system. The EMU was formed on Jan. 1, 1999.
Plans for the EMU were formalized in provisions within the Maastricht Treaty, which founded the European Union. The Maastricht Treaty was signed in 1992, and subsequently ratified by all of the member states. Some countries approved the treaty by a public vote, while other countries ratified the treaty through a legislative vote. The Treaty set up the conditions, or "convergence criteria," which each member state in the European Union must meet before it could join the EMU. These conditions for EMU membership were considered necessary because when the member states join the EMU, domestic economic crises in one member state will effect all of the other member states.
To participate in the initial formation of the EMU, each member state had to meet the following five convergence criteria by 1998: (1) the national legislation governing the country's financial system had to be compatible with the treaty provisions controlling the European System of Central Banks; (2) the country had to achieve a rate of inflation within 1.5 percent of the rates in the three participating countries with the lowest rates; (3) the country had to reduce its government deficits to below 3 percent of its gross national product; (4) the country had to keep its currency exchange rates with the limits defined by the ERM for at least two years; and (5) the country had to keep its interest rates within two percent of the rates in the three participating countries with the lowest rates.
Eleven of the 15 European Union member states initially qualified to join the EMU in 1998. Those states were: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.