Economic and Monetary Union
Economic and Monetary Union (EMU) is the process by which the economic and monetary policies of the EU Member States are harmonised, culminating in the introduction of a single currency, the euro. The convergence required for Economic and Monetary Union was prescribed by the EC Treaty setting criteria to be met by a Member State before it can take part (Article 140 TFEU, Articles 1-4 of the Protocol on Convergence Criteria). Compliance with the criteria is to be examined by the Commission and the European Central Bank. The criteria are:
- the ratio of government deficit to gross domestic product must not exceed 3%;
- the ratio of government debt to gross domestic product must not exceed 60%;
- there must be a sustainable degree of price stability and an average inflation rate, observed over a period of one year before the examination, which does not exceed by more than 1.5% that of the three best performing Member States in terms of price stability;
- there must be a long-term nominal interest rate, which does not exceed by more than 2% that of the three best performing Member States in terms of price stability;
- the normal fluctuation margins provided for by the exchange rate mechanism on the European monetary system must have been respected without severe tensions for at least the last two years before the examination.
Eleven Member States met these criteria by the deadline of the third stage of EMU (1 January 1999), and Greece also did so two years later, before the euro was introduced on 1 January 2003, replacing the national currencies for more than 300 million EU citizens. The other Member States remain outside the euro.
With the objective of maintaining monetary stability, the convergence criteria relating to government deficit and government debt were to continue after the introduction of the euro. To that end, the Member States adopted a ‘Stability and growth pact’ embodied in a European Council resolution adopted at Amsterdam on 17 June 1997 and two Council regulations of 7 July 1997. This allowed for the Council to impose financial penalties on participating Member States that failed to comply. It remains unclear whether failure by some Member States to comply will in practice trigger the sanctions envisaged.
The implications of Europeanisation of economic policymaking following EMU for employment and industrial relations in the EU are potentially vast. The focus on monetary stability presents challenges for policies aimed at growth, with consequences for employment levels. In particular, the rigid convergence criteria for public debts and deficits pose difficulties for public finances at a time of economic downturns and retrenchment, again with implications for employment and social policy in general. The elimination of national currencies means devaluation will no longer be available to enable national adjustment to competitive pressures. One possible consequence could be that labour costs become a focus of competitive pressure, with consequences for collective bargaining and industrial relations. On the other hand, the European Commission argues that macroeconomic pressures would also increase the need for the development of a European social agenda.