European Monetary Union
"European Monetary Union
and the Harm
The EMU was established by the Maastrict Treaty signed in 1992. It set out the legal framework for the new monetary union and the criteria required for member states to join, called convergence criteria. These convergence criteria dealt with macroeconomic factors including national government budget deficits, debt ratios, exchange rates, long term interest rates, and price stability. There was much jockeying on the part of countries that wanted to participate but did not fit the criteria. While there was criticism that some of the criteria were "fudged" in order to permit wider participation, there is evidence of some tangible changes in member state macroeconomic policy to meet these criteria. On May 1, 1991, the European Council decided which member states met the criteria for entry. Only one member state which wanted to participate was excluded, Greece. The UK, Sweden, and Denmark did not request admission into EMU. The portion of the EU participating in the EMU has been known as "Euroland". The French objected to that designation because it was not the same in French. Thus, the commonly used designation is now "Zone euro" which is the same in French.
On January 1, 1999, conversion rates between the euro and national currencies are irrevocably fixed. For instance, the conversion rate of the Deutsche Mark was set at 1.9583 which means that 1 DM equals slightly more than half a euro. The chart below gives the fin