> The EMS was built on exchange rates defined with reference to a newly created ECU (European Currency Unit), a weighted average of EMS currencies. An exchange rate mechanism (ERM) was used to keep participating currencies within a narrow band. The EMS represented a new and unprecedented coordination of monetary policies between the Member States, and operated successfully for over a decade.
This success provided the impetus for further discussions between the Member States on achieving economic and monetary union. At the request of the European leaders, the European Commission President, Jacques Delors, and the central bank governors of the EU Member States produced the 'Delors Report' on how EMU could be achieved. h3> Phase 4: From Maastricht to the euro and the euro area, 1991 to 2002
The Delors Report proposed a three-stage preparatory period for economic and monetary union and the euro area, spanning the period 1990 to 1999.
The Delors Report recommended EMU in three stages
The report indicated that this could be achieved in three stages, moving from closer economic and monetary coordination to a single currency with an independent European Central Bank and rules to govern the size and financing of national budget deficits.
The three stages towards EMU
Stage 1 (1990-1994)
Complete the internal market and remove restrictions on further financial integration.
Stage 2 (1994-1999)
Establish the European Monetary Institute to strengthen central bank co-operation and prepare for the European System of Central Banks (ESCB). Plan the transition to the euro. Define the future governance of the euro area (the Stability and Growth Pact). Achieve economic convergence between Member States.
Stage 3 (1999 onwards)
Fix final exchange rates and transition to the euro. Establish the ECB and ESCB with independent monetary policy-making. Implement binding budgetary rules in Member States.
European leaders accepted the recommendations in the Delors Report. The new Treaty on European Union, which contained the provisions needed to implement EMU, was agreed at the European Council held at Maastricht, the Netherlands, in December 1991. This Council also agreed the 'Maastricht convergence criteria 'that each Member State would have to meet to participate in the euro area.
After a decade of preparations, the euro was launched on 1 January 1999. At the same time, the euro area came into operation, and monetary policy passed to the European Central Bank (ECB), established a few months previously - 1 June 1998 - in preparation for the third stage of EMU. After three years of working with the euro as 'book mo...
