1、Economic and Monetary Unionin EuropeChapter 8Chapter OutlineThe snake in the tunnelThe EMSThe ECUThe Maastricht TreatyThe eurosystem8.1 A history of the road to European Monetary UnionRome Treaty of 1957 created the European Economic Community(EEC)The Werner ReportThe snake in the Tunnel arrangement

2、 of 1972,finished by 1978EMS and the Delors ReportStage 1: the convergence phase(from 1 July 1990 to 31 December 1993)Stage 2: the transition phase(1 January 1994)Stage 3: the fixing and euro phase(1 January 1999)38.2 The Snake in the TunnelThe Snake system(EMS) The snake in the Tunnel commenced ope

3、rations on 24 April 1972 and was made up of the original six EEC members(Belgium, France, Italy, Luxembourg, Netherlands and Germany);on 23 May 1972 the UK and Denmark joined the system and Norway became an associate member.While the member currencies could vary by a maximum of 1.125% against each o

4、ther (the Snake)They could float by 2.25% against the US dollar (the Tunnel)as permitted by the Smithsonian agreement.4Table 1 Central parity realignments in the Snake8.3 The background to the European Monetary System The EMS consisted of three main features:The Exchange Rate Mechanism(ERM)The Europ

5、ean Currency UnitFinancing facilities68.4 The Exchange Rate MechanismThe Exchange Rate Mechanism(ERM)consisted of two parts:A grid of bilateral exchange rate bands between each of the member currencies which defined obligatory intervention.An individual band of fluctuation(threshold)for each currenc

6、y against a European Currency Unit(ECU). If a currency moved too much against the EUC basket it would lead to the expectation that the authorities of that currency would take policy measures designed to bring it back within its ECU threshold.The ECU was an artificial currency based upon a calculatio

7、n of a weighted basket of 12 European currencies.7Table 2 Central rates of the ERM grid in 1998 (bilateral conversion rates announced 2 May 1998)8.5 Financing facilities and monetary cooperationFinancing facilitiesEach member of the EMS deposited 20% of its gold dollar reserves with the European Mon

8、etary Cooperation Fund(EMCF)in exchange for the equivalent value in ECUsauthorities use ECUs rather than dollars for their exchange market interventionsECUs would be extensively used for settlements between EEC central banks. 98.5 Financing facilities and monetary cooperationCredit facilities:Very s

9、hort-term financing(VSTF)Short-term monetary support(STMS)Medium-term financing assistance(MTFA) 108.6 Benefits of economic and monetary unionStimulus to intra-EU tradeA more efficient allocation of factors of production within the EUEconomizing of foreign exchange reserves and seigniorage benefitsS

10、avings in administrative costs for businesses.Greater liquidity and rationalization of financial markets.Greater price transparency.11Table 3 Inflation in ERM and non-ERM countriesTable 4 Economic growth in ERM and non-ERM countries8.7 Costs of European Monetary UnionLoss of monetary autonomy.Loss o

11、f national macroeconomic policy autonomy.Loss of inflation tax.Regional disparities.Loss of the exchange rate policy instrument.Transition costs.148.8 The Maastricht TreatyAverage consumer price inflation in the country should not be more than 1.5% above that of the three countries with the lowest i

12、nflation rates.A country should not have an excessive budget deficit, with the reference rate being that it should not exceed 3% of gross domestic product.The outstanding public-sector debt(national debt)of the country should not exceed 60% of gross domestic product.Average nominal long-term interes

13、t rates in the year of examination should not be more than 2% above that of the three countries with the lowest inflation rates.15Table 5 The accession countries and the Maastricht criteria8.9 The changeover of the currencyThe first period (originally scheduled for May 1998)involved the selection of

14、 the countries that met the Maastricht criteria and were therefore eligible to join EMU.A second period(1 January 1999), the permanent fixing of the bilateral rates between the member currencies and announcement of their conversion rates to the euro.A final period(starting on 1 January 2002)was the

15、introduction of euro banknotes and coins alongside existing national notes and coins for a maximum period of six moths.178.10 The performance of the euro in the foreign exchange markets18Figure 16.2 The dollareuro exchange rate, 199920058.11 The eurosystemThe eurosystem comprises the ECB and the 12 national central banks(NCBs);the governing bodies of the eurosystem are the Executive Board and the Governing Co