Community policies: the European monetary policy
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The birth of a single currency within the European Community constitutes for the renunciation of Member States with respect to individual monetary policy, one of the essential attributes of national sovereignty. This point should be relative because the States had lost their autonomy of monetary issues and of exchange while relying on the policy from the German Central bank. Thereafter, they recovered part of this capacity by the means of institutions like the Council of the EU or the European Central bank. This was established on June 1, 1998 at the same time as the European System of Central Banks or the SEBC.
The Council fixed irrevocable rates of conversion between the national currencies of the members who adopted the Euro. Since there was only one currency, a monetary policy and a policy of exchange for the members of the ?euro area' came to existence. The monetary policy followed at the European Community level is one of the two shutters of the Economic and Monetary Union (EMU), and the second is the economic policy.
But the latter is summarized with a simple coordination of the national economic policies accompanied by the requirement of a certain budgetary discipline. Indeed to be viable, a single currency must rest on homogeneous conditions and the EU must endeavor to be an ?optimal monetary area'. This supposes conditions of growth, inflation and unemployment. It is what the Treaties call the criteria of convergences for the passage of single currency.
This construction has been slow in coming. The Treaty establishing the EEC contained few provisions that were limited to the provisions sufficient to establish a common market, the international monetary system to ensure stability. The international monetary system from the Bretton Woods agreement of 1944 weakened in the 60s and collapsed in 1973. Moreover, the six founding states were reluctant to engage together in a fiscal policy that would require further economic and monetary coordination.
The Treaty thus reflects a low concern for monetary issues. In particular each Member State is responsible for setting monetary policy and there is a coordination at Community level.
Several elements will encourage Europe to intensify its efforts to develop a single policy in place:
? the idea of progressive autonomy of the EEC, and the emancipation from American supremacy and the overwhelming significance of the dollar
? the development of the CAP also encourages the development of a monetary system: it has relatively fixed exchange rates for the working of the common price system
? the customs union and common market necessitate a monetary cooperation for the transparency of market prices
? Finally, a political reason: Pompidou succeeded de Gaulle in 1969, which was hostile to any monetary integration.
Tags: Treaty establishing the EEC, European Central bank, Economic and Monetary Union