Monetary union

Like the SEA, the TEU extended the scope of Community competence and strengthened its institutional machinery; in particular, the powers of the European Parliament . Perhaps one of the most politically sensitive issues was the introduction of provisions designed to lead to full economic and monetary union by 1999. The fact that of the then Member States both Britain and Denmark negotiated provisions allowing them to opt out of this process indicates the import­ance of this issue. Even Germany, one of the driving forces behind monetary union, experienced difficulties; the validity of Germany's entry into the single currency was challenged, albeit unsuccessfully, before the German constitutional court.

The road to monetary union fell into three stages (Articles 98-124 (ex 102a-9m) EC). Stage one consisted of the completion of the internal market and the removal of controls on the movement of capital. This stage has been completed. Stage two began on 1 January 1994. It aimed to ensure the convergence of the economies of the Member States, measured by criteria set out in the EC Treaty. These are com­monly referred to as the 'convergence criteria'. Only countries which satisfy the convergence criteria will be able to join the single currency. A two-year membership of the exchange rate mechanism (ERM) is also a prerequisite to demonstrate mon­etary stability before a country can join the euro. The final stage was the irrevocable locking of the exchange rates of the Member States' currencies and the introduction of a common currency, the euro. The date set for the introduction of the single cur­rency was 1 January 1999, although euro coins and notes were not issued in all the participating states until 2002. Following the introduction of the single currency, a new ERM was introduced between the euro and the currencies of those Member States that have not yet joined the single currency. In addition to this, the treaty contains provisions detailing the institutions necessary to run the single currency (Articles 112-15 (ex 109a-d) EC). These are the European Central Bank (ECB) and a committee to determine economic policy, the Council of Economic and Finance Ministers (ECOFIN). Member States, including those which have not adopted the euro, are supposed to run their economies in line with the Stability and Growth Pact (SGP), though difficulties in practice lead to its revision in 2005 so as to allow greater flexibility in national responses to difficult economic times.

The Member States joining economic and monetary union in the first wave were identified in a Commission recommendation based on its Convergence Report of 25 March 1998 on the state of the Member States' economies. Eleven states were identified as having satisfied the convergence criteria: Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, The Netherlands, Austria, Portugal, and Finland (the UK, Denmark, and Sweden having, for the time being, opted out of monetary union). This recommendation was confirmed by the European Council meeting in May 1998. Subsequently, Greece became the twelfth Member State to join the Eurozone, on 1 January 2002. All the new Member States are entitled to join the euro if they meet the criteria. Estonia, Latvia, and Lithuania have joined the ERM as a preliminary step. Slovenia joined the Eurozone in January 2007; Malta and Cyprus joined in January 2008. The most recent entrant is Slovakia; with official adoption of the euro on 1 January 2009. Slovakia's entry was approved notwithstanding the ECB's concerns about the country's inflation. Enthusiasm for early adoption of the euro has faded somewhat due to the current economic situation, and most coun­tries in ERM have dropped specific target dates for its adoption.