Economic and Monetary Union (EMU)

In June 1988 the European Council confirmed the objective of the progressive realisation of Economic and Monetary Union (EMU). It mandated a committee chaired by Jacques Delors, the then President of the European Commission, to study and propose concrete stages leading to this union.

The committee was composed of the governors of the then European Community (EC) national central banks; Alexandre Lamfalussy, the then General Manager of the Bank for International Settlements (BIS); Niels Thygesen, professor of economics, Denmark; and Miguel Boyer, the then President of the Banco Exterior de España.

The resulting Delors Report proposed that economic and monetary union should be achieved in three discrete but evolutionary steps.

Stages of Economic and Monetary Union (EMU)


starting 1 Jul 1990
Complete freedom for capital transactions;
Increased co-operation between central banks;
Free use of the ECU (European Currency Unit, forerunner of the €);
Improvement of economic convergence;
starting 1 Jan 1994
Establishment of the European Monetary Institute (EMI);
Ban on the granting of central bank credit;
Increased co-ordination of monetary policies;
Strengthening of economic convergence;
Process leading to the independence of the national central banks, to be completed at the latest by the date of establishment of the European System of Central Banks;
Preparatory work for Stage Three;
starting 1 Jan 1999
Irrevocable fixing of conversion rates;
Introduction of the euro;
Conduct of the single monetary policy by the European System of Central Banks;
Entry into effect of the intra-EU exchange rate mechanism (ERM II);
Entry into force of the Stability and Growth Pact;

Stage 1

Stage One of EMU

On the basis of the Delors Report, the European Council decided in June 1989 that the first stage of economic and monetary union should begin on 1 July 1990. On this date, in principle, all restrictions on the movement of capital between Member States were abolished.

Committee of Governors

The Committee of Governors of the central banks of the Member States of the European Economic Community, which had played an increasingly important role in monetary cooperation since its creation in May 1964, was given additional responsibilities. These were laid down in a Council Decision dated 12 March 1990. Their new tasks included holding consultations on, and promoting the coordination of, the monetary policies of the Member States, with the aim of achieving price stability.

In view of the relatively short time available and the complexity of the tasks involved, the preparatory work for Stage Three of Economic and Monetary Union (EMU) was also initiated by the Committee of Governors. The first step was to identify all the issues which should be examined at an early stage, to establish a work programme by the end of 1993 and to define accordingly the mandates of the existing sub-committees and working groups established for that purpose.

Legal preparations

To achieve Stages Two and Three, the Treaty establishing the European Economic Community (the Treaty of Rome) needed to be revised in order to establish the required institutional structure. To this end, an Intergovernmental Conference on EMU was convened, which was held in 1991 in parallel with the Intergovernmental Conference on political union.

The negotiations resulted in the Treaty on European Union which was agreed in December 1991 and signed in Maastricht on 7 February 1992. However, owing to delays in the ratification process, the Treaty (which amended the Treaty establishing the European Economic Community – changing its name to the Treaty establishing the European Community – and introduced, inter alia, the Protocol on the Statute of the European System of Central Banks and of the European Central Bank and the Protocol on the Statute of the European Monetary Institute) did not come into force until 1 November 1993.

Stage 2

Stage Two of EMU

Establishment of the EMI and the ECB

The establishment of the European Monetary Institute (EMI) on 1 January 1994 marked the start of the second stage of EMU and with this the Committee of Governors ceased to exist. The EMI's transitory existence also mirrored the state of monetary integration within the Community. The EMI had no responsibility for the conduct of monetary policy in the European Union – this remained the preserve of the national authorities – nor had it any competence for carrying out foreign exchange intervention.

The two main tasks of the EMI:

  • to strengthen central bank cooperation and monetary policy coordination, and
  • to make the preparations required for the establishment of the European System of Central Banks (ESCB), for the conduct of the single monetary policy and for the creation of a single currency in the third stage.

To this end, the EMI provided a forum for consultation and for an exchange of views and information on policy issues and it specified the regulatory, organisational and logistical framework necessary for the ESCB to perform its tasks in Stage Three.

In December 1995 the European Council agreed to name the European currency unit to be introduced at the start of Stage Three, the ‘euro', and confirmed that Stage Three of EMU would start on 1 January 1999. A chronological sequence of events was pre-announced for the changeover to the euro. This scenario was mainly based on detailed proposals elaborated by the EMI.


At the same time, the EMI was given the task of carrying out preparatory work on the future monetary and exchange rate relationships between the euro area and other EU countries. In December 1996 the EMI presented its report to the European Council, which formed the basis of a Resolution of the European Council on the principles and fundamental elements of the new exchange rate mechanism (ERM II), which was adopted in June 1997.

The new banknotes

In December 1996 the EMI also presented to the European Council, and subsequently to the public, the selected design series for the euro banknotes to be put into circulation on 1 January 2002.

Stability and Growth Pact

In order to complement and to specify the Treaty provisions on EMU, the European Council adopted the Stability and Growth Pact in June 1997 – two Regulations form part of the Stability and Growth Pact, which aims to ensure budgetary discipline in respect of EMU. The Pact was supplemented and the respective commitments enhanced by a Declaration of the Council in May 1998. It underwent reforms in 2005 and 2011.

Initial participants

On 2 May 1998 the Council of the European Union – in the composition of Heads of State or Government – unanimously decided that 11 Member States had fulfilled the conditions necessary for the participation in the third stage of EMU and the adoption of the single currency on 1 January 1999. The initial participants were Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. The Heads of State or Government also reached a political understanding on the persons to be recommended for appointment as members of the Executive Board of the European Central Bank (ECB).

Preparation for fixing the conversion rates

Also in May 1998, the ministers of finance of the Member States adopting the single currency agreed together with the governors of the national central banks of these Member States, the European Commission and the EMI that the current ERM bilateral central rates of the currencies of the participating Member States would be used in determining the irrevocable conversion rates for the euro.

Appointment of decision-making bodies

On 25 May 1998 the governments of the 11 participating Member States appointed the President, the Vice-President and the four other members of the Executive Board of the ECB. Their appointment took effect from 1 June 1998 and marked the establishment of the ECB. The ECB and the national central banks of the participating Member States constitute the Eurosystem, which formulates and defines the single monetary policy in Stage Three of EMU.

With the establishment of the ECB on 1 June 1998, the EMI had completed its tasks. In accordance with Article 123 (ex Article 109l) of the Treaty establishing the European Community, the EMI went into liquidation on the establishment of the ECB. All the preparatory work entrusted to the EMI was concluded in good time and the rest of 1998 was devoted by the ECB to the final testing of systems and procedures.

Stage 3

Stage Three of EMU

Irrevocable fixing of exchange rates

On 1 January 1999 the third and final stage of EMU commenced with the irrevocable fixing of the exchange rates of the currencies of the 11 Member States initially participating in Monetary Union and with the conduct of a single monetary policy under the responsibility of the ECB.

The number of participating Member States increased to 12 on 1 January 2001, when Greece entered the third stage of EMU. Slovenia became the 13th member of the euro area on 1 January 2007, followed one year later by Cyprus and Malta, by Slovakia on 1 January 2009, by Estonia on 1 January 2011, by Latvia on 1 January 2014 and by Lithuania on 1 January 2015. On the day each country joined the euro area, its central bank automatically became part of the Eurosystem.