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European Monetary Union (EMU). These efforts led to the birth of the EMU in 1979. At that time, few
economists gave it much chance of survival. 2 It not only survived, however, it grew and prospered.
At the Hannover Summit of 1988, the European Council agreed to adopt the Single European Act, with the
implicit objective of monetary integration. Mr. Delors, then President of the European commission,
recommended a three‐stage plan to coordinate more economic and monetary policies with the intention of
creating a European single currency under the stewardship of a European Central Bank. The three stages in
de Delors plan incorporate the coordinating economic policy, achieving economic convergence and finaly
the adoption of the euro, the EU's single currency. This report was known as the Delors Plan.
The first stage of the Delors Plan began in 1990, and the European Council convened in Maastricht in 1991.
There the Heads of State signed the Maastricht Treaty, which set out the tough economic convergence
criteria that had to be met to qualify for the single currency. Next, the currencies of the non‐participating
countries (pound sterling, the drachma, and the escudo) were brought into the exchange‐rate mechanism
(notably, the pound sterling left the mechanism not much later). The second phase of the Delors plan was
fuelled in 1994, with the creation of the so‐called European Monetary Institute (EMI).
It was decided in May 1998 that 11 EU countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, and Spain) satisfied the convergence criteria. Greece met these
criteria very soon afterwards, so that it was ready to introduce the Euro on January 1, 2002 as the twelfth
country. Also in 1998, the European Central Bank (ECB), the successor of the EMI, was erected. It became
operational in 1999.
The final stage of the Delors Plan, the adoption of the Euro, started on January 1, 1999. The parity rates
were fixed irreversibly. As a consequence, national currencies were simply denominations of the Euro, but
continued to be used as a matter of convenience. Full monetary union came into existence on January 1,
2002 when the Euro was introduced in its physical form and when the national currencies were taken out
of circulation. At this time, Slovenia (2007), Cyprus (2008), Malta (2008), and Slovakia (2009) have joined
the Euro Zone, with EU members Denmark and the Baltic countries legally pegging their currencies to the
Euro.
There are many implications of the Euro adaptation. 3 The Euro led to reduced transaction costs (due to less
need for currency conversion and hedging), simplified cash management, reduced cost of borrowing,
2 B. Eichengreen. and C. Wyplosz. “The Unstable EMS,” Brookings Papers on Economic Activity 1 (1993): 51.
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