Economics, 3rd Edition

European Economic and Monetary Union

, or EMU. 

(Note that ‘EMU’ stands for ‘Economic and Monetary Union’, not European Monetary Union, as is 

often supposed.) The countries that currently form the euro area are Austria, Belgium, Cyprus,  Estonia, 

 Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, 

 Slovakia,  Slovenia and Spain (informally known as ‘euroland’ but more correctly as the euro area). The 

move towards a single European currency has a very long history. The main landmarks in its formation, 

started in 1992 with the Maastricht Treaty (formally known as the Treaty on European Union), which 

laid down (among other things) various criteria for being eligible to join the proposed currency union. In 

order to participate in the new currency, member states had to meet strict criteria such as a  government 

budget deficit of less than 3 per cent of GDP, a government debt-to-GDP ratio of less than 60 per cent, 

combined with low  inflation and interest rates close to the EU average. The Maastricht Treaty also laid 

down a timetable for the introduction of the new single currency and rules concerning the setting 

up of a European Central Bank (ECB). The ECB actually came into existence in June 1998 and forms, 

together with the national central banks of the countries making up the common currency area, the 

European System of  Central Banks (ESCB), which is given responsibility for ensuring price stability and 

 implementing the single European monetary policy.