EU-US Summit Facts Brief No. 5

ECONOMIC AND MONETARY UNION IN EUROPE

The preparations for Economic and Monetary Union (EMU) in Europe are on track for the 1 January 1999 deadline, which will see the introduction of the new currency, the euro. The benefits of a successful EMU will not be confined to the European Union. They will spill over into other parts of the international economy including the United States. In particular, US financial institutions will be well placed to exploit opportunities in the deep and liquid Euro financial markets. Business and financial sectors in Europe, the US and the rest of the world need to accelerate preparations for the introduction of the Euro.

The EMU policy framework will ensure that the Euro is a stable and credible currency.

Of course, the benefits of EMU will depend upon its smooth functioning. European economies are well prepared for EMU, particularly as a large number of them have been in de facto monetary union for a considerable time, and they are currently enjoying the lowest inflation rates in 35 years.

In the past, the exchange rate has proven ineffective as an instrument of adjustment in the highly open EU economies. It is necessary to concentrate on other instruments of adjustment and on making EU member-state economies more flexible. This is why structural reform has now moved to the top of the EU policy agenda.

EMU is the continuation of almost 40 years of economic integration in Europe. The fundamental objective of EMU - as the next step in the integration process - is to create an even more prosperous European Union. This objective will be achieved by ensuring an environment of economic stability and enhanced market competition, which will foster needed structural reform within the Union. In this way, EMU will help the Union to respond to the challenges of globalisation and will make her an even more reliable partner in the international economy.

EMU is a logical complement to the EU’s internal market, which comprises 370 million consumers and is already highly integrated. However, efficiency in the internal market suffers because it functions with many different national currencies. EMU and the introduction of the euro as a single currency will help to boost efficiency by ensuring price stability, by reducing the transaction costs related to currency exchange and by stimulating investment through lower interest rates, better price transparency and more certainty in planning.

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