European Monetary Union

The Economic and Monetary Union (EMU) is an umbrella term for the group of policies aimed at converging the economies of member states of the European Union at three stages. The policies cover the 19 eurozone states, as well as non-euro European Union states.

Each stage of the EMU consists of progressively closer economic integration. Only once a state participates in the third stage it is permitted to adopt the euro as its official currency. As such, the third stage is largely synonymous with the eurozone. The euro convergence criteria are the set of requirements that needs to be fulfilled in order for a country to join the eurozone. An important element of this is participation for a minimum of two years in the European Exchange Rate Mechanism ("ERM II"), in which candidate currencies demonstrate economic convergence by maintaining limited deviation from their target rate against the euro.

Nineteen EU member states, including most recently Lithuania, have entered the third stage and have adopted the euro as their currency. All new EU member states must commit to participate in the third stage in their treaties of accession. Only Denmark and the United Kingdom, whose EU membership predates the introduction of the euro, have legal opt outs from the EU Treaties granting them an exemption from this obligation. The remaining seven non-euro member states are obliged to enter the third stage once they comply with all convergence criteria.

The idea of an economic and monetary union in Europe was first raised well before establishing the European Communities. For example, the Latin Monetary Union existed from 1865-1927. In the League of Nations, Gustav Stresemann asked in 1929 for a European currency against the background of an increased economic division due to a number of new nation states in Europe after World War I.

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