Pros and cons

“The economic and monetary Union is a solid construction”, “an undeniable success”; “in a period of great uncertainty like this, in which the prices of energy and food are increasing, we need to congratulate ourselves on having at our disposal a single currency, based on a market that comprises 320 million people”, declared Joaquin Almunia, EU Commissioner for Monetary Affairs. Speaking to the European Parliament meeting in Brussels on 7-8 May, the Commissioner reviewed the first ten years in the life of the euro; the decision to create the single currency in fact dates to May 1998.Assessment of the single currency. On Wednesday 7 May Almunia presented a study entitled “EMU@10: successes and challenges after ten years of Economic and Monetary Union”. Economists attribute various positive benefits to the introduction of the euro: greater financial stability, control of inflation and consumer prices, improving public finances, growth of integration of financial markets, reinforcement of the internal market with more trade within the EU, and the elimination of currency exchange costs. The Commission’s document also reviews the problems that still remain to be tackled to give further stability to the processes of production and trade, increase the competitiveness of the European economic system and create more jobs. “More effective governance needed”. According to the Commission’s experts, “the euro has introduced lasting price stability at a level that most of its member states had never experienced before”; and “interest rates have on average fallen to 5%, against 9% in the 1990s”. Moreover, the elimination of the costs and risks linked to currency exchange has permitted a growth of trade in the EMU that “currently represents a third of European GDP, against the previous 25%”. Positive benefits are also being derived from greater investments and “a higher employment level, with the creation of 16 million jobs since 1999”, a result shared with the Lisbon Strategy. Almunia does not disguise the problems that still remain to be tackled: “The governance of the euro area and the coordination of monetary policies must improve” and “become more effective”, since the “economic decisions of a single country have an influence on all the rest”. That’s why there is a constant need to keep tight control on inflation, public budget deficits, and the ratio between GDP and public borrowing. Doors open to Slovakia. In its EMU@10 none report the Commission spells out some policy guidelines that could be adopted to reinforce the Economic Union and the internal market. Almunia explains that he intends to submit various proposals to the European Council and Parliament in the second half of this year, including: “a programme to develop more fully the potential of the EMU”; measures to “improve surveillance” and the “reinforcement of the euro on the international scene”, and “more effective governance within the euro area”. The Commission, however, has already taken other decisions in this field. On 7 May it concluded, after a period of observation, that “Slovakia satisfies the criteria for euro membership” and hence the Executive will recommend to the Council her entry into the single currency from 1st January 2009. For the time being the road remains barred to nine other countries seeking to join the euro area: Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden. The Executive headed by Barroso has further recommended to the Council that the procedure for “excessive deficit” opened against Italy and Portugal be closed, “given that in 2007 the deficit of both countries has dropped below the threshold of 3% of GDP and, according to forecasts, should remain below this threshold in 2008 and 2009”. The Commission has also established that the procedure for excessive deficit brought against the Czech Republic and Slovakia can be suspended. The decision is now up to the Council: if it adopts these recommendations, only two countries would remain “under observation”: Poland and Hungary. Fact FileThe euro, which has now become one of the most conspicuous and concrete symbols of EU integration, is currently circulating in 15 nations thanks to a long political process that began in 1971 with the Werner Report (Werner was the then Premier of Luxembourg) and was codified in the Maastricht Treaty of 1992. In May 1998 the European Council established that 11 EU member states satisfied the “convergence criteria” and were ready to join the euro area. The European Central Bank came into operation on 1st June 1998. The euro became a reality as a virtual currency (“accountancy money”) in January 1999, while actual euro coins and banknotes began to circulate in 2002. To the initial 11 states (Belgium, Germany, Spain, France, Italy, Ireland, Luxembourg, Netherlands, Austria, Portugal and Finland), four other countries were later added (Greece, Slovenia and, since 1st January 2008, Cyprus and Malta): Slovakia is poised to become the sixteenth member of the euro area from 2009.