Show all/Hide all

1.2.2.1.1. What steps preceded the setting up of the European Monetary System (EMS)?

• The Barre Plan*, which put forward the first proposals for reciprocal consultation on economic policy and a system of mutual credit, was discussed at The Hague on December 1st and 2nd, 1969 by the six heads of state and the governments of the countries of the European Economic Community (EEC).    They decided to put into effect, by stages, a plan aimed at the creation of an economic and monetary union.  They also examined the possibility of establishing a European reserve fund* with the ultimate goal of achieving a common economic and monetary policy.

• During the presidency of the Prime Minister of Luxembourg, Pierre Werner*, a committee of experts worked on a document (given the name "Werner Report"), which was submitted in October 1970.  It concluded that it was necessary to establish, by stages, a monetary union among the member states.  It aimed to reduce the fluctuations in exchange rates between the currencies of the member states, then eliminate the margins of fluctuation* in the rates of exchange*, fix irrevocable the parity between currencies, and liberate completely the movement of capital.   This policy was expected to lead to the creation of a European central bank and a single European currency, along with the harmonisation of economic and fiscal policies.

Pierre Werner

• At the international level, an agreement was reached between the currency regulating institutions of seventeen European countries, the terms of which stipulated an undertaking to sell and buy their currency in exchange for USD at a rate* which could vary only 0.75% up or down from the value declared by the IMF (International Monetary Fund).

1.2.2.1.2. For what reasons did the earlier European monetary arrangements prove insufficient?

• The agreement was based entirely on the USD as the reference currency* for all international transactions. The instability of the USD, and the speculation which followed, pushed the rates out of their limits.

• On 15 August 1971, the United States decided to call an end to the convertibility of the dollar and to introduce a general tax on imports. These developments were followed by several oil crises.  Four months later, on 18 December 1971, the agreement reached at the Smithsonian Institute in Washington resulted in a general realignment of exchange rates in favour of the German Deutschmark (DEM) and the Japanese Yen (JPY).  It allowed the margins of fluctuation permitted by the IMF to increase from 0.75% to 2.25%.  A floating exchange system, therefore, replaced a fixed system established at Bretton Woods*.  Thus at the international level, a "tunnel of fluctuation*" was created, within which the major currencies could vary in value, upward or downward, but without overstepping the new margins of plus or minus 2.25% with respect to the USD.  Between any two other currencies the maximum variation would be, from now onward, 4.5%

• The Council of Ministers of the EEC then decided to further reduce, within the framework of the European monetary agreement, the maximum tolerance between EEC currencies (Council resolution of 21 March 1972 and the agreements reached at Basel on 10 April 1972).  This was the birth of the "snake within the tunnel".  The maximum variation between two EEC currencies was limited to 2.25% within an "international tunnel" which had a maximum variation of 4.5%.  The member states undertook to intervene, with community currencies, to defend the internal limits.  

Illustration 1.2.2 a . The snake in the tunnel.  (new still to be prepared).

• In 1973 the shock to oil supplies and generalised inflation led to a new monetary crisis, which resulted in the floating of currencies* beyond the limits set out by the international tunnel.  In effect, this meant the end of the international tunnel.  The European central banks no longer defended the limits on exchange rates with the use of USD, but respected the margins imposed by the snake.  On 13 April 1973, they decided to set up the European Funds for Monetary Cooperation (FECOM)  Established  by the committee of central bank governors, this became the embryo of the future European Central Bank.  The instability of the Pound Sterling (GBP) and the Italian Lira (ITL) necessitated the departure of Britain and Italy from the monetary snake*.  France, shaken by speculation on a rise in the DEM and the preparation for the presidential election of May 1974, was, in turn, forced to leave the European monetary snake.  She rejoined in July 1975 but left again in March 1976.  The monetary snake effectively became a club for countries with a strong currency.

Jean-Pierre Fourcade  

• Two reports, one by Jean-Pierre Fourcade* and one by Leo Tindemans* were critical of the methods aimed at achieving a convergence of the European economies and the political consensus necessary to launch the Union.  They proposed a common effort between the countries with strong currencies and those with weak currencies, i.e. those with a high rate of inflation, and suggested that these be limited to concrete initiatives.  Based on the Marjolin* Plan, the member states accepted the proposal of the Commission to create a new accounting unit, called the "ECU-Basket", which broke with the concept, dating from 1962, of the UA, in the sense that, instead of being based on gold, it returned to the concept of a "basket currency" of the Special drawing rights (SDR)  of the International Monetary Fund (IMF) The coefficients applied to each national currency which make up the new ECU gives an exact parity with the SDR and is close to the US dollar (1 ECU-basket = 1 SDR = 1.020635 USD).  Thus the European authorities confirmed their wish to attach their own monetary unit to the dominant international currencies. The continuity of parity with the USD is almost maintained.  The ECU-basket has been rapidly adopted by all European institutions in their international negotiations.

1.2.2.1.3. How did the European Monetary System (EMS) come into being?

In March 1978, during the Franco-German Summit held in Aachen, thanks to the joint efforts of Valéry Giscard d'Estaing* and Helmut Schmidt*, the idea of a more rigorous system became more firmly established.

On 7 July 1978, the objectives of the European Monetary System were defined:

• establish a firmer monetary cooperation, leading to a zone of stability and solidarity in Europe;
• exert a stabilising influence on the international economy;
• make the weight of Europe count - an important factor from the economic, as well as commercial and monetary points of view

The 5 December 1978 European Council in Brussels returned to the proposals of Aachen and created the mechanisms of the initial phase of the EMS, which came into effect on 13 March 1979.

1.2.2.1.4. How can one describe the EMS ?

The EMS is the result of an agreement between the member states of the EEC on two areas of finance:

•  it established a means of fixing rates of exchange and a mechanism for intervention in the Community money markets;
•  it reorganised the mechanisms for credit between central banks of the Community and/or the member states.

The agreement specified the respective roles of the community central banks, the EEC and the European Council.  Its function was based on an accounting unit* - the European Currency Unit (ECU) - which gradually acquired the minimal characteristics of a currency, justifying its written form as money - the "ecu".

The EMS had the goal of creating a zone of monetary stability by the limitation of the margins of fluctuation between the participating currencies and  by applying its mechanisms for credit.

1.2.2.1.5. How does the exchange rate intervention mechanism work?

Two reference systems aimed at establishing a greater stability in the currency markets: the table of limits for intervention of the participating currencies and the convergence relationships.

• Each participating currency has a value in ECUs.  That permits the establishment of a cross-reference table of bilateral pivotal rates*, that is to say, the value of each participating currency in terms of each of the other participating currencies.  In applying this pivotal rates, the maximum authorised fluctuation margins  (initially 2.25%, later 15%) a table of limits necessitating intervention is obtained.  The rates of exchange of the participating currencies cannot be allowed to fluctuate outside the limits.  If the limits are reached, then the central banks intervene, buying or selling their own currency, to return the exchange rate to within the permitted limits.  This deals with the case of bilateral intervention, that is to say, a situation involving two countries only.

• The mechanism also makes provision for multilateral intervention (involving more than two countries) in the interest of providing convergence between currencies. To achieve this the maximum deviation of each currency from the average of the other currencies is determined.  An intervention threshold is established for each currency at 75% of the limits for bilateral divergence.  Whenever a currency exchange rate steps over this threshold, the relevant authorities are expected to take corrective measures: internal monetary policy measures, modification of the pivot rates, various types of intervention.  These mechanisms have not prevented some countries from having to leave the EMS.

1.2.2.1.6. How do the credit mechanisms within the EMS work?

All member states of the EEC participate in the operation of four mechanisms:

• very short term credit facilities: unlimited amounts granted by the central banks for financing intervention in the exchange market for a maximum period of three months;
• short-term monetary support: limited support, following on from the above facility, for a maximum of three periods of three months each, arranged between central banks;
• medium term financial assistance: credit from 2 to 5 years between member states, normally by through the central banks;
• Community loans: granted between member states, for agreed periods, to cover problems resulting from balances of payment.

1.2.2.1.7. Has the EMS made national currencies superfluous?

The EMS did not have as its role the replacement of national currencies by a unified currency.  Its goal was exclusively the creation of a zone of greater stability between national currencies around a pivotal currency: the ECU.  National currencies remain the base of the basis of the exchange market.  The ECU did not replace them, but acted as an additional parallel currency

Show all/Hide all

1.2.2.2.1. The Official ECU; a basket currency?

The official unit of account (and currency) used within the framework of the EMS is called the official ECU.  It followed the EUA-basket with the rate of 1 to 1.  After that, its value was calculated periodically by the EC from the exchange rates of the currencies which make up the ECU. The new basket currency is composed of fixed quantities of each of the currencies of the member countries of the EEC.  Basically it corresponds to the relative weight of the economy and the population of each member country.  The composition was reviewed every five years, up to 1 November 1993, when the European Union Treaty (which succeeded the EEC) came into force.

Composition of the ECU-basket
© Promeuro - Illustration 1.2.2.a  

Up till that date, each time that a country joined the Union, its national currency became integrated into the calculation of the basket, something which provoked uncertainty about the future value of the ECU.  Article 109G of the European Union Treaty froze its composition to the 12 currencies of the countries which were then members.  That is why the currencies of three member countries, which joined the European Union  in 1995 - Austria, Finland and Sweden, were not represented in the ECU.

1.2.2.2.2. What is the private ecu?

In 1982, a branch of the commercial bank Kredietbank in the Grand Duchy of Luxembourg began to issue securities denominated in ECU.  Rather than denote these credits in national currencies, which the bank would subsequently convert into ECU, the subscribers could, with the agreement of the Bank for International Settlements (BIS), open an account in ECU and thus carry out business directly in this currency.  The first two credits in ECU were made out to the financial company for telecommunications and electronics - Gruppo Telecom Italia (Softe SA) - and the European Investment Bank (EIB).  Thus the ECU became more than a mere unit of account.  It also became a reserve of value, called the "private ecu", written in lower-case letters to distinguish it from the  official ECU.  It was now a unit of value used in financial and commercial transactions.  Its composition was the same as that of the official ECU. Its value was determined by supply and demand in the financial markets.  Its parity could, therefore, diverge slightly from that of the official ECU.  The "delta" was the measurement of that divergence. This difference was greater than 1% for an extended period between 1994 and the beginning of 1996.  The "delta" became, in a way, a measure of the confidence that the markets had in the European currency.  It was never positive on a regular basis, except for the period mid-1997 and December 1999.  

It should be noted that even during the financial turmoil which seriously shook the European financial markets in 1992 and 1993, the definitions of the official ECU and the private ecu were never placed in doubt, either officially or in the private markets.

Evolution of the delta of the ecu
© Promeuro - Illustration 1.2.2.b

1.2.2.2.3. How did the ecu come into being?

The ecu was created by the banks via credit operations that they granted.  In the absence of a European central bank, the compensation* between the credit and debit positions in ecu was carredied out by the Ecu Banking Association for (EBA) (??) with the technical collaboration of Bank for International Payments (BIP) (??).  The transmission of messages was assured by the network "Swift" (Society for Worldwide Interbank Financial Telecommunication).

The system consisted of 46 compensation banks.  The "correspondant" banks, which were not members, were expected to pass their payment orders by the intermediary of a compensation bank.  Moreover, the "non-banks" (savings societies, postal cheque accounts) were forced to make payment via a bank.


Volume of ecu compensation payments by the EBA
© Promeuro - Illustration 1.2.2.c

For more infomation about the Society for Worldwide Interbank Financial Telecommunication, visit the SWIFT website: a Société mondiale de télécommunications financières interbancaires, le site de SWIFT : www.swift.com

For more information on the "Euro Banking Association
www.abe.org

1.2.2.2.4. How real was the ecu market?

There were no notes nor coins - hence the ecu was an abstract currency. It existed only in scriptural form*.  Everyone could, for example, open a current account with a bank in ecu, from which all the usual financial transactions were possible,  just as for national currencies, which also had a scriptural rather than fiduciary* nature.  A market for the ecu existed and its size was far from negligible.  In 1992, the ecu was about to become the third most significant currency in the world (after the USD and the DEM) on the bond markets.  Up until 1998, the amount of compensation payments by the EBA was about 50,000 million ecus daily.

1.2.2.2.5. Was the ecu a currency in its own right?

A currency has three attributes: it is a unit of account, a value reserve (savings) and a means of payment*.

The ECU was the official unit of account of the EU from 1979 onwards.  It was used by numerous public and private enterprises (Fiat, Alcatel, Amadeus, Eutelsat, Merck, etc.)  for maintaining their accounts, as a reference currency for their invoices and for payment of their suppliers.  The majority of European railway and telecommunications companies made use of the ECU in their international relations.

It also served the role of a value reserve, as shown by the development of the financial markets.  A number of financial products were available - bonds, term contracts, options, swaps, commercial certificates, and deposit certificates.  Anyone could open an account in ecu, sign Eurocheques in ecu or use a credit card denominated in ecu.

The use of the ecu as a means of payment in commercial transactions, however, experienced negligible development.  It could be used only if both parties agreed.  It was its lack of use in commercial transactions which reduced its monetary degree (so called "moneyness").

Remark: Like the majority for foreign currencies, the ecu, which did not exist in fiduciary* form, had no liberation value*.  It was, however, convertible to currencies which possessed liberation value*: in a bank, one could exchange one's balance in ecu into the currency one wanted.

1.2.2.2.6. What were the advantages of the ecu?

Neutrality.

In an international transaction, especially between countries, where the monies formed part of the transaction, the ecu avoided the choice  between the money of the buyer and that of the seller, and spread equally the risk of exchange rate variation.

In the same way, an investor, who bought European financial assets, was spared the choice between several currencies.  Thanks to investments in ecu his activities could cover the whole of Europe.  This was particularly true for non-European investors with little knowledge of the individual European countries.  Moreover there was a wide selection of financial products in ecu, something which is missing from certain national currencies.
 
Simplification.

The ecu improved price transparency by facilitating the comparison of the price of products or services with differing countries of origin.  Through use of the ecu, a multinational could simplify management of funds and thus save money.

See Illustration Chapter 1.3. (1.3.1. a : comparison of the price of a Coca-Cola bottle in various European countries).  

Stability.

Thanks to the link to the ECU-basket and the EMS, which limited the variation in exchange rates between participating currencies, the ecu enjoyed a greater stability than the national currencies whose bilateral fluctuations could be significant in the short term (see illustration 1.1.a).

The reduction of the cost of transactions.

If the ecu had been used by a large number of customers, transactions costs would have come down. In effect if more and more purchases and sales had been denominated in ecu, a de facto compensation market between the sums to pay and receive would have developed, liquidity in the market would have increased and the cost of exchange reduced.  This evolution depended on the umber of users and the fees imposed by banks on transfers in ecus.

1.2.2.2.7. What were the weak points ecu?

• The absence of a territorial base.

Lacking a domestic market, the ecu was a foreign currency everywhere, a factor which limited the number of end users. Because it had no legal legally fixed rate, no one was obligated to accept payment of a debt in ecus.  This limited the number of users: what's the use of possessing a telephone if no one else has one?

• The complication of having a parallel currency.

It was the 13th or the 16th currency of the Union.  No ecu notes or coins existed.  The coins minted with the name "ecu" were medals aimed at collectors; they had only a collection  value and no liberation value.

Although the ecu was used in certain transactions, for others, for example, to pay taxes, or goods and services with an official fixed price (petrol, energy, water, public transport, etc.) one was obliged to use national currencies.  In the majority of countries, companies were expected to declare assets and present accounts in national currency.

• Risk of exchange rate change.

Despite its short-term stability, there remained the risk that the ecu could change in value.  As a basket currency the ecu inevitably lost value with respect to the "strong" currencies and gained in value with respect to the "weak" currencies.  Investors in countries with a strong currency were confronted with the risk of a devaluation of their savings in ecu, whilst borrowers in countries with a weak currency risked an increase in the size of their debt - when converted into their own currencies, despite the Exchange Rate Mechanism (ERM).

This vulnerability of the ecu was accentuated by the tendency of certain countries to finance their public debt from the ecu market.  This practice was subsequently eliminated as central banks were forbidden to offer uncovered credits*  to their governments.  Nevertheless, the ecu was left with the reputation of being a weak currency in countries with a strong currency.

• The high cost of banking operations.

The private ecu was created by private banks - i.e. not issued by a central bank.  It had, therefore, no lender of last resort*, as was the case for national currencies, which led to a certain risk of uncovered loss, even when all precautions had been taken to ensure the stability of the system.  This risk, linked to a lack of liquidity within the market, resulted in elevated charges for transactions in ecu, especially for small amounts.  The system of compensation of the Ecu Banking Association was not suited to small transactions.

1.2.2.2.8. What was the role of the "Delors* Plan" in the European monetary construction?

The "Delors* Committee Report" was the result of reflection by a group of experts, amongst whom were the twelve governors of the central banks.  Its conclusions were submitted by Jacques Delors*, at that time president of the Commission, at the Madrid Council in 1989.  It proposed a stepwise transition toward a single currency in support of the single market.  It revealed the necessity of a new  treaty regarding the Union in order to reach the goal of a single currency.  It demonstrated that market forces alone were insufficient to be able to give the Community a single currency.
It asked for measures to ensure a better "convergence" of economic policies and the development of the market for the private ecu.  It proposed the setting up of a "European System of Central Banks" (ESCB).  It didn't fix dates for each phase but took up, in an altered form, the phases of the Werner Plan.

Jacques Delors

The application of the Delors Plan is found in the articles 109F.2 and 109J.1 of the European Union Treaty  which assumes a continued development of the ecu market until the arrival of the single currency.

This concept of a natural evolution toward a single currency was finally abandoned in favour of the "big-bang scenario" proposed by the European Monetary Institute (EMI) and the EC, and ratified by the Madrid Summit in December 1995.  According to this scenario, the introduction of a single currency would take place in a single step, with a minimal period of transition.

1.2.2.2.9. From the ECU to euro: what is the comparison?

The ECU ceased to exist at the point of the creation of the euro on 1 January 1999.  At that date all holdings in ECU and ecus were converted into euros at the rate of 1 to 1.

Neither the ECU (the unit of account) nor the ecu (the basket currency) were entirely currencies in their own right, since their values depended on the currencies which made them up.  They had only a borrower of last resort*.  Little used in commerce, the ecu therefore did not have all the attributes of a currency.

On the other hand, the euro has all these attributes, in particular it is a means of payment of commercial and public transactions with national authorities (for example to pay taxes).

In countries which adopted the euro it has a "liberating value" and, of course, it exists in the form of notes and coins.

The institutional arrangements are different.  Effectively, the monetary policy is decided by the European Central Bank (ECB) whose foremost objective is stability of prices.

The fundamental difference is that the ecu was and addition to national currencies and, therefore, did not eliminate the fluctuations between them, while the euro replaces national currencies, thus eliminating completely the risk of exchange rate variation between them.

1.2.2.2.10. How could the ECU, a monetary basket of twelve national currencies become equal to a euro?

The Union Treaty stipulates (Article 109 L.4) that at the point of transition of the ECU (which in languages of Latin origin is written "ecu", while all in other languages the Treaty refers to "ECU") for the ecu (as a currency in its own right), i.e. the euro.  "This measure does not in itself modify the external value of the "ecu" (now called "euro").

Effectively, on the day of conversion to the euro, the ECU, which had a counter-value in a non-European currency, for example the dollar, was disconnected from its components, but kept its value with respect to this external currency.  If the ECU had a value of 1 USD on 31 December 1998 at midnight, then the euro would be equal to 1 USD on 1 January 1999.

This permitted the component currencies to fix their rate of conversion into the euro without, in so doing, disturbing the financial markets of the European currency.  This conversion of 1 ECU for 1 euro was confirmed by the legal framework of the euro, approved by the heads of state and the government in December 1996 in Dublin.  It finds its place in the series of conversions which dot the path of the history of European monetary construction.  At each step, the new currency unit is exchanged at the rate of 1 to 1 with the one which it replaces.  Thus from the EUA to the UA and from the UA to the ECU (accounting unit) and again from the ECU to the euro.  In the past the ECU was not affected by the presence or absence of the GBP in the Exchange Rate Mechanism (ERM).  Thus, there is nothing unexpected in the equivalence between the ECU and the euro, whatever currencies the euro replaces.

In order to reassure the media and the markets, the European Investment Bank (EIB) decided in 1996 to issue a loan of 500 million ecus iwith a guarantee of conversion at the rate of one ECU for one euro.  In January 1997, the EIB entered the market with the first loan denoted in euros (1000 million for a period of 7 years).  The bank did the same thing with several loans denoted in the currency of a member state, with the inclusion of a clause for the conversion into euros  at a rate fixed at the time of the entry of the country into the EMU.

Several public bodies, including the EC and the EIB stated publicly, moreover, that the entirety of their debts in ECU would be converted, on 1 January 1999 at the rate of 1 ECU for 1 euro, even if this guarantee was not explicitly mentioned in the original documents.

1.2.2.2.11. In what way was the phenomenon of the ecu important for the single European currency?

One ECU was exchanged for one euro, comforting the principle of continuity of the monetary unit, respected since the launch in 1950 of the EUA and the EUA-basket in 1975.  Without the ECU the approximate future values of the national currencies in euro could not have been estimated.  Its existence also allow us to compare the evolution of exchange rates of all European currencies and the evolution of the euro in relation to external currencies, for the years which preceded the launch of the euro.

The ECU was used not only by European institutions, but also by the European Bank of Reconstruction and Development (EBRD), and for international compensation payments, by, for example, the railways of twenty European countries, and within the telecommunications and shipping sectors.

The ecu was a revealing engagement by the private sector on the path toward a single currency.  It demonstrated the need for a common currency in Europe, particularly in large capital markets.  It was also, within the Union, a symbol of North-South solidarity, one of the founding principles of the Treaty of Rome.

One American economist described the ecu as the most remarkable financial innovation of the second half of the 20th Century.  The audacity which characterised its launch was a foretaste of that which prevailed when 15 members of the European Union committed themselves to the innovated adventure of replacing their own national currencies with the Euro.

The serious perturbations of the ecu market in 1992 and 1993 demonstrated also the importance of a healthy management of public finances and a reinforced convergence of the economic policies of the member states of the Union in the interest of having a reliable currency in the future.  These perturbations demonstrate also the danger of a lack of public support for any European monetary construction.

In conclusion, the ecu constituted an important step in the process of monetary integration in Europe.

For more information, the  website of the archives of the euro : www.ecu-activities.be
Euro birth and life, European Parliament Fact sheets.

Show all/Hide all

1.2.2.3.1. What was the first step toward the implementation of the EMU?

First of all, the Genscher-Colombo Plan* and the report of the ad hoc committee of 30 June 1985, ended with a decision by the EC in Milan to call an "intergovernmental conference" for the revision of the Treaty of Rome.  The text of the agreement, dated 17 December 1985, and known by the name of the "Single Act", was approved by the European Council in Luxembourg in December 1985, and signed by the member states in February 1986, then ratified, coming into force on 1 July 1987.

1.2.2.3.2. What were the monetary objectives of the Single Act?

The principal objective of the Single Act was the establishment of a large internal European market, before 31 December 1992.  It referred to monetary problems and particularly to the EMS and the ECU as a basis for future solutions.  The result was the addition of a chapter (Article 102. A) to the Treaty of Rome, with the title "Cooperation in the field of economic and monetary policy".

1.2.2.3.3. What was the role of the Monetary Committee?

The impulse given to the technical preparation of the single currency and the progress achieved for the resolution of questions regarding the organisations which would manage the euro, particularly the European System of Central Banks (ESCB) and the ECB, owed much to the work of the Monetary Committee.  The Committee, was established as a consultative body by the European Union Treaty  (Article 109.C) and consisted of two representatives of each member state of the EC.  It brought together representatives of the European central banks, finance ministers, and the Commission.  It made preparations for meetings of the Ministerial Economic and Finance Council (Ecofin).  It was recognised that, under the direction of Sir Nigel Wicks*, the technical competence of Committee members and especially their ability to look beyond their national interests, played a decisive role in achieving European monetary union.

Sir Nigel Wicks

In January 1999, the Committee changed its name.  It is now called the Economic and Finance Committee (EFC) - or alternatively, the Eurogroup.

1.2.2.3.4. From an historical point of view, what are the principal characteristics of the European monetary construction?

They are :

• its duration : it required more than a century for the United States to establish a central bank.  The European Union, despite its cultural and linguistic diversity completed the same journey in fifty years;

• its pragmatism - which preceded political union;

• its consistency : the journey from the European Unit of Account Unit (EUA) to the euro, passing by the UA (1962) and the ECU-basket (1979) was at each stage achieved at a rate of 1 to 1.  In the moments of grave monetary crisis (1992-1993) the definition of the ECU was never put in question.  It should also be noted that the concept of stability developed first of all for the EUA (equal to the US dollar, the international reference currency) followed by a basket currency, is a significant innovation with reduced risks of exchange rated variation for importing and exporting companies.  This consistency explains why the value of the euro fluctuated for a long time at parity around the USD.

1.2.2.3.5. In comparison with past attempts at monetary union, what is the originality of EMU?

In the past, monetary agreements have either :

• been preceded by a political agreement opening the way of monetary union, the creation of a central bank, the issue of a common currency (other exception the German Münzverein*);
• been concluded to the advantage of a currency of one country, which then becomes the currency of the partner countries;
• been signed in order to assure the reciprocal circulation of money in each of the countries.

The originality of the EMU rests on the fact that the ECU first, the euro later, were created by sovereign countries in terms of monetary policies with their own central bank which, amongst other actions, issued their proper currency.

The EMU is also unique in terms of the autonomy it leaves each country to define its own economic and fiscal policies, something which permits them to offer securities under different conditions.  The big question is whether EMU will survive this oddity in the long term, without a greater convergence of economic policies and without political union.  As early as 1972 the Werner Plan called for a political union as a guarantee of the durability of a European monetary union.

It is the first time in history that so many sovereign countries have accepted the voluntary abandonment of the very symbol of their sovereignty and adopted a common form of money.  For Germans that meant the loss of the symbol of their economic success (the DEM) and for Greeks the loss of their drachma (GRD) with its 4000-year-old history.

"There may well be states without their own currency, but no durable currency without a state."
Mark Eyskens, government minister, Belgium.

For an historical summary of the history of  European monetary construction, see : www.europarl.eu.int/factsheets/5_1_0_en.htm