Stability and Growth Pact
The Stability and Growth Pact is an agreement, among the 28 member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union. Based on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers, the issuing of a yearly recommendation for policy actions to ensure a full compliance with the SGP in the medium-term. If a Member State breaches the SGP's outlined maximum limit for government deficit and debt, the surveillance and request for corrective action will intensify through the declaration of an Excessive Deficit Procedure; the pact was outlined by a resolution and two council regulations in July 1997. The first regulation "on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies", known as the "preventive arm", entered into force 1 July 1998; the second regulation "on speeding up and clarifying the implementation of the excessive deficit procedure", known as the "dissuasive arm", entered into force 1 January 1999.
The purpose of the pact was to ensure that fiscal discipline would be maintained and enforced in the EMU. All EU member states are automatically members of both the EMU and the SGP, as this is defined by paragraphs in the EU Treaty itself; the fiscal discipline is ensured by the SGP by requiring each Member State, to implement a fiscal policy aiming for the country to stay within the limits on government deficit and debt. As outlined by the "preventive arm" regulation, all EU member states are each year obliged to submit a SGP compliance report for the scrutiny and evaluation of the European Commission and the Council of Ministers, that will present the country's expected fiscal development for the current and subsequent three years; these reports are called "stability programmes" for eurozone Member States and "convergence programmes" for non-eurozone Member States, but despite having different titles they are identical in regards of the content. After the reform of the SGP in 2005, these programmes have included the Medium-Term budgetary Objectives, being individually calculated for each Member State as the medium-term sustainable average-limit for the country's structural deficit, the Member State is obliged to outline the measures it intends to implement to attain its MTO.
If the EU Member State does not comply with both the deficit limit and the debt limit, a so-called "Excessive Deficit Procedure" is initiated along with a deadline to comply, which includes and outlines an "adjustment path towards reaching the MTO". This procedure is outlined by the "dissuasive arm" regulation; the SGP was proposed by German finance minister Theo Waigel in the mid-1990s. Germany had long maintained a low-inflation policy, an important part of the German economy's strong performance since the 1950s; the German government hoped to ensure the continuation of that policy through the SGP, which would ensure the prevalence of fiscal responsibility, limit the ability of governments to exert inflationary pressures on the European economy. As such, it was described to be a key tool for the Member States adopting the euro, to ensure that they did not only meet the Maastricht convergence criteria at the time of adopting the euro, but kept on to comply with the fiscal criteria for the following years.
The Pact has been criticised by some as being insufficiently flexible and needing to be applied over the economic cycle rather than in any one year. They fear that by limiting governments' abilities to spend during economic slumps it may hamper growth. In contrast, other critics think; this is amply evidenced by the “creative accounting” gimmickry used by many countries to achieve the required deficit to GDP ratio of 3 percent, by the immediate abandonment of fiscal prudence by some countries as soon as they were included in the euro club. The Stability Pact has been watered down at the request of Germany and France."Some remark that it has been applied inconsistently: the Council of Ministers failed to apply sanctions against France and Germany, while punitive proceedings were started when dealing with Portugal and Greece. In 2002 the European Commission President Romano Prodi described it as "stupid", but was still required by the Treaty to seek to apply its provisions; the Pact has proved to be unenforceable against big countries such as France and Germany, which were its strongest promoters when it was created.
These countries have run "excessive" deficits under the Pact definition for some years. The reasons that larger countries have not been punished include their influence and large number of votes on the Council of Ministers, which must approve sanctions; the Pact was further weakened in 2005 to waive Germany's violations. In March 2005
European Central Bank
The European Central Bank is the central bank for the euro and administers monetary policy within the Eurozone, which comprises 19 member states of the European Union and is one of the largest monetary areas in the world. Established by the Treaty of Amsterdam, the ECB is one of the world's most important central banks and serves as one of seven institutions of the European Union, being enshrined in the Treaty on European Union; the bank's capital stock is owned by all 28 central banks of each EU member state. The current President of the ECB is Mario Draghi. Headquartered in Frankfurt, the bank occupied the Eurotower prior to the construction of its new seat; the primary objective of the ECB, mandated in Article 2 of the Statute of the ECB, is to maintain price stability within the Eurozone. Its basic tasks, set out in Article 3 of the Statute, are to set and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and operation of the financial market infrastructure under the TARGET2 payments system and the technical platform for settlement of securities in Europe.
The ECB has, under Article 16 of its Statute, the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins; the ECB is governed by European law directly, but its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is €11 billion held by the national central banks of the member states as shareholders; the initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the capital key has been adjusted. Shares in the ECB can not be used as collateral; the European Central Bank is the de facto successor of the European Monetary Institute. The EMI was established at the start of the second stage of the EU's Economic and Monetary Union to handle the transitional issues of states adopting the euro and prepare for the creation of the ECB and European System of Central Banks; the EMI itself took over from the earlier European Monetary Co-operation Fund. The ECB formally replaced the EMI on 1 June 1998 by virtue of the Treaty on European Union, however it did not exercise its full powers until the introduction of the euro on 1 January 1999, signalling the third stage of EMU.
The bank was the final institution needed for EMU, as outlined by the EMU reports of Pierre Werner and President Jacques Delors. It was established on 1 June 1998; the first President of the Bank was Wim Duisenberg, the former president of the Dutch central bank and the European Monetary Institute. While Duisenberg had been the head of the EMI just before the ECB came into existence, the French government wanted Jean-Claude Trichet, former head of the French central bank, to be the ECB's first president; the French argued. This was opposed by the German and Belgian governments who saw Duisenberg as a guarantor of a strong euro. Tensions were abated by a gentleman's agreement in which Duisenberg would stand down before the end of his mandate, to be replaced by Trichet. Trichet replaced Duisenberg as President in November 2003. There had been tension over the ECB's Executive Board, with the United Kingdom demanding a seat though it had not joined the Single Currency. Under pressure from France, three seats were assigned to the largest members, France and Italy.
Despite such a system of appointment the board asserted its independence early on in resisting calls for interest rates and future candidates to it. When the ECB was created, it covered a Eurozone of eleven members. Since Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015, enlarging the bank's scope and the membership of its Governing Council. On 1 December 2009, the Treaty of Lisbon entered into force, ECB according to the article 13 of TEU, gained official status of an EU institution. In September 2011, when German appointee to the Governing Council and Executive board, Jürgen Stark, resigned in protest of the ECB's "Securities Market Programme" which involved the purchase of sovereign bonds by the ECB, a move, up until considered as prohibited by the EU Treaty; the Financial Times Deutschland referred to this episode as "the end of the ECB as we know it" referring to its perceived "hawkish" stance on inflation and its historical Bundesbank influence.
On 1 November 2011, Mario Draghi replaced Jean-Claude Trichet as President of the ECB. In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%, with a further increase to 1.50% in July 2011. However, in 2012–2013 the ECB lowered interest rates to encourage economic growth, reaching the low 0.25% in November 2013. Soon after the rates were cut to 0.15% on 4 September 2014 the central bank reduced the rates by two thirds from 0.15% to 0.05%, the lowest rates on record. In November 2014, the bank moved into its new premises; the primary objective of the European Central Bank, set out in Article 127 of the Treaty on the Functioning of the European Union, is to maintain price stability within the Eurozone. The Governing Council in October 1998 defined price stability as inflation of under 2%, “a year-on-year increase in the Harmonised Index of Consumer Prices for the euro area of below 2
The Euro summit is the meeting of the heads of state or government of the member states of the eurozone. It is distinct from the EU summit held by the European Council, the meeting of all EU leaders; the Euro summit began as an offshoot of the Euro Group, the meeting of the eurozone member's finance ministers. French President Nicolas Sarkozy called for the Euro summit to replace the Euro Group as a "clearly identified economic government" for the eurozone, stating it was not possible for the eurozone to continue without it; the eurozone economic government would discuss issues with the European Central Bank, which would remain independent. Sarkozy stated that "only heads of state and government have the necessary democratic legitimacy" for the role; this idea was based on the meeting of eurozone leaders in 2008 who met to agree a co-ordinated eurozone response to the banking crisis. They first met in response to the debt crisis. Subsequent meetings took place in March 2010, May 2010, March 2011, July 2011 and October 2011.
In the October 2011 meeting, it was agreed to formalise the Euro summit, as at least twice yearly meeting. This change was formalised in the 2012 Treaty on Stability and Governance in the Economic and Monetary Union. Since this formalisation, Heads of State or Government have failed to meet this target of twice yearly meetings in 2013, 2014, 2016 and 2017. A Euro summit President, separate from the Euro Group President, would be elected at the same time as the President of the European Council and under the same rules; until such an election takes place, the European Council President fulfils that role. In October 2011, the Eurozone head of states agreed to meet at least twice per year, as part of measures to improve governance of the Eurozone. Meetings were chaired by president Herman Van Rompuy from March 2010 to November 2014. Donald Tusk has been the Euro Summit president since December 1, 2014, ends his term on May 31, 2017; the table below lists the summary reports of all previous Euro Summits.
New procedure rules for Euro summits were adopted on 14 March 2013, regulating the Euro Summit shall meet at least twice a year, convened by its President on preferably one of the same dates as the EU summits. However, for unknown reasons, only one Euro Summit meeting per year took place in 2013 and 2014, none took place in 2016. In its informal capacity, the de facto summit President has been the European Council President, meaning that Herman Van Rompuy chaired all meetings since March 2010 to December 2014; the proposals for formalisation of the summit include electing a President along the same lines as the European Council President, until Van Rompuy continues to chair the summit. On 1 March 2012, he was formally elected as President of the Euro Summit for the term 1 June 2012 to 30 November 2014. New president for the term 1 December 2014 until 31 May 2017, is the former Polish Prime Minister Donald Tusk. Notes Presidents of other EU institutions, such as the President of the European Commission and the European Central Bank President attend.
Presidents of the Euro Group and of the European Parliament may be invited and the President of the Euro Summit shall present a report to the European Parliament after each of the meetings of the Euro Summit. Heads of state or government of non-eurozone signatories to the European Fiscal Compact treaty participate, at least once a year, for those policies of the treaty that apply to them. In some summits, other leaders might attend discussions, for example the British Prime Minister attending the 2008 summit. European Fiscal Compact European sovereign debt crisis Euro Group
History of the euro
The euro came into existence on 1 January 1999, although it had been a goal of the European Union and its predecessors since the 1960s. After tough negotiations due to opposition from the United Kingdom, the Maastricht Treaty entered into force in 1993 with the goal of creating an economic and monetary union by 1999 for all EU states except the UK and Denmark; the currency was formed in 1999. It took over from the former national currencies and expanded behind the rest of the EU. In 2009, the Lisbon Treaty finalised its political authority, the Eurogroup, alongside the European Central Bank. First ideas of an economic and monetary union in Europe were raised well before establishing the European Communities. For example 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. At this time memories of the Latin Monetary Union involving principally France, Italy and Switzerland and which, for practical purposes, had disintegrated following the First World War, figured prominently in the minds of policy makers.
A first attempt to create an economic and monetary union between the members of the European Economic Community arrived with an initiative by the European Commission in 1969, which set out the need for "greater co-ordination of economic policies and monetary cooperation." This was followed up at a meeting of the European Council at The Hague in December 1969. The European Council tasked Pierre Werner, Prime Minister of Luxembourg, with finding a way to reduce currency exchange rate volatility, his report was published in October 1970 and recommended centralisation of the national macroeconomic policies entailing "the total and irreversible fixing of parity rates and the complete liberation of movements of capital." But he did not propose central bank. An attempt to limit the fluctuations of European currencies, using a snake in the tunnel, failed. In 1971, US President Richard Nixon removed the gold backing from the US dollar, causing a collapse in the Bretton Woods system that managed to affect all of the world's major currencies.
The widespread currency floats and devaluations set back aspirations for European monetary union. However, in March 1979 the European Monetary System was created, fixing exchange rates onto the European Currency Unit, an accounting currency, to stabilise exchange rates and counter inflation, it created the European Monetary Cooperation Fund. In February 1986, the Single European Act formalised political co-operation within the EEC, including competency in monetary policy; the European Council summit in Hannover on 14 June 1988 began to outline monetary co-operation. France and European Commission backed a monetary union with a central bank, which British Prime Minister Margaret Thatcher opposed; the Hannover European Council asked Commission President Jacques Delors to chair an ad hoc committee of central bank governors to propose a new timetable with clear and realistic steps for creating an economic and monetary union. This way of working was derived from the Spaak method. France and the UK were opposed to German reunification, attempted to influence the Soviet Union to stop it.
However, in late 1989 France extracted German commitment to the Monetary Union in return for support for German reunification. The Delors report of 1989 set out a plan to introduce the EMU in three stages and it included the creation of institutions such as the European System of Central Banks, which would become responsible for formulating and implementing monetary policy, it laid out monetary union being accomplished in three steps. Beginning the first of these steps, on 1 July 1990, exchange controls were abolished, thus capital movements were liberalised in the European Economic Community. Leaders reached agreement on currency union with the Maastricht Treaty, signed on 7 February 1992, it agreed to create a single currency, although without the participation of the United Kingdom, by January 1999. Gaining approval for the treaty was a challenge. Germany was cautious about giving up its stable currency, i.e. the German Mark, France approved the treaty by a narrow margin and Denmark refused to ratify until they got such an opt-out from monetary union as the United Kingdom, an opt-out that they maintain as of 2019.
On 16 September 1992, known in the UK as Black Wednesday, the British pound sterling was forced to withdraw from the fixed exchange rate system due to a rapid fall in the value of the pound. Delors' second stage began in 1994 with creation of the European Monetary Institute, succeeding the EMCF, under Maastricht, it was created as the forerunner to the European Central Bank. It met for the first time on 12 January under Alexandre Lamfalussy. After much disagreement, in December 1995 the name euro was adopted for the new currency, on the suggestion of then-German finance minister Theo Waigel, they agreed on the date 1 January 1999 for its launch. On 17 June 1997 the European Council decided in Amsterdam to adopt the Stability and Growth Pact, designed to ensure budgetary discipline after creation of the euro, a new exchange rate mechanism was set up to provide stability above the euro and the national currencies of countries that hadn't yet entered the eurozone. On 3 May 1998, at the European Council in Brussels, the 11 initial countries that would participate in the third stage from 1 January 1999 were selected.
To participate in the new currency
50 euro cent coin
The 50 euro cent coin has a value of half a euro and are composed of an alloy called nordic gold. All coins have country-specific national sides; the coin has been used since 2002, with the present common side design dating from 2007. The coin dates from 2001, when euro coins and banknotes were introduced in the 12 member eurozone and its related territories; the common side was designed by Luc Luycx, a Belgian artist who won a Europe-wide competition to design the new coins. The design of the 10 to 50 cent coins were intended to show separate states of the European Union, as opposed to the one and two euro coins showing the 15 states as one and the 1 to 5 cent coins showing the EU's place in the world; the national sides 15 were each designed according to national competitions, though to specifications which applied to all coins such as the requirement of including twelve stars. National designs were not allowed to change until the end of 2008, unless a monarch dies or abdicates; this happened in the Vatican City resulting in three new designs in circulation.
National designs have seen some changes due to new rules stating that national designs should include the name of the issuing country. As the EU's membership has since expanded in 2004 and 2007, with further expansions envisaged, the common face of all euro coins from the value of 10 cent and above were redesigned in 2007 to show a new map; this map showed Europe, not just the EU, as one continuous landmass, however Cyprus was moved west as the map cut off after the Bosporus. The redesign in 2007, rather than in 2004, was due to the fact that 2007 saw the first enlargement of the eurozone. Hence, the Slovenian design was added to the designs in circulation. Two more designs were added in 2008 with the entry of Cyprus and Malta and another one in 2009 with Slovakia. Two more were added in 2011 and 2014, for Estonia and Latvia and Lithuania in 2015; the coins are composed of an alloy called Nordic gold, with a diameter of 24.25 mm, a 2.38 mm thickness and a mass of 7.80 grams. The coins' edges have regular indentations.
The coins have been used from 2002, though some are dated 1999, the year the euro was created as a currency, but not put into general circulation. The reverse displays a map of Europe on the left; the map does not include Iceland and cuts off on the right through Russia (exactly, at a line from the Kandalaksha Gulf to the Bosphorus. The map is flat and level with most of the coin and the sea is shown as an indentation. Six fine lines cut through the sea, breaking when passing through the map, at their ends at the top and bottom are twelve stars. To the right, in raised lettering, is "50 Euro Cent" with the'50' being shown much larger than the words; the designers initials, LL, appear next to the 0 in 50. Luc Luycx designed the original coin, much the same except the design was only of the 15 members and shown with gaps between the states and raised rather than with an indented sea; the obverse side of the coin depends on the issuing country. All have to include the engravers initials and the year of issue.
New designs have to include the name or initials of the issuing country. The side cannot repeat the denomination of the coin unless the issuing country uses an alphabet other than Latin. Despite using the Latin alphabet, Austria repeats the denomination on its coins. Austria and Greece will at some point need to update their designs to comply with guidelines stating they must include the issuing state's name or initial, not repeat the denomination of the coin. In addition, there are several EU states that have not yet adopted the euro, some of them have agreed upon their coin designs however it is not yet known when they will adopt the currency, hence these are not yet minted. See enlargement of the Eurozone for expected entry dates of these countries. "National sides: 50 cents". European Central Bank. Retrieved 18 August 2009
International status and usage of the euro
The international status and usage of the euro has grown since its launch in 1999. When the euro formally replaced 12 currencies on 1 January 2002, it inherited their use in territories such as Montenegro and replaced minor currencies tied to the pre-euro currencies, such as in Monaco. Four small states have been given a formal right to use the euro, to mint their own coins, but all other usage has been unofficial outside the eurozone. With or without an agreement these countries, unlike those in the eurozone, do not participate in the European Central Bank or the Eurogroup, its international usage has grown as a trading currency, acting as an economic or political alternative to using the United States dollar. Its increasing usage in this sense has led to its becoming the only significant challenger to the US dollar as the world's main reserve currency. Several European microstates outside the EU have adopted the euro as their currency. For EU sanctioning of this adoption, a monetary agreement must be concluded.
Prior to the launch of the euro, agreements were reached with Monaco, San Marino, Vatican City by EU member states allowing them to use the euro and mint a limited amount of euro coins to be valid throughout the Eurozone. However, they cannot print banknotes. All of these states had had monetary agreements to use yielded eurozone currencies; the Vatican and San Marino had their currencies pegged to the Italian lira and Monaco used the Monegasque franc, pegged to the French franc. Between 2010 and 2012, new agreements between the EU and Monaco, San Marino and the Vatican City came into force. A similar agreement was negotiated with Andorra and came into force on 1 April 2012. Andorra did not have an official currency. Prior to 2002, it used both the French franc and Spanish peseta as de facto legal tender currencies, though they never had an official monetary arrangement with either country, switched to the euro when it was introduced on 1 January 2002. After years of negotiations over concerns with banking secrecy, the EU and Andorra signed a monetary agreement on 30 June 2011 which made the euro the official currency in Andorra and allowed them to mint their own euro coins as early as 1 July 2013, provided they comply with the agreement's terms.
However, the first Andorran euro coins did not enter into circulation until January 2015. Outside the EU, there are three French territories and a British territory that have agreements to use the euro as their currency. All other dependent territories of eurozone member states that have opted not to be a part of EU with Overseas Country and Territory status, use local currencies which are pegged to the euro or US dollar; as non-sovereign entities, dependent territories which have adopted the euro are not permitted to mint euro coins like the European microstates, nor do they get a seat in the European Central Bank or the Eurogroup. France is responsible for ensuring that the laws governing the EMU apply in their territories which use the euro; the first OCTs to adopt the euro through a monetary agreement were the French overseas territories of Saint-Pierre-et-Miquelon, located off the coast of Canada, Mayotte in the Indian Ocean. They both adopted the euro on 1 January 1999 when the currency was first introduced at the electronic level.
Mayotte subsequently held a referendum in 2009 in which it decided to become an integral part of France. Its status was changed from an OCT to an OMR, where EU laws apply without separate agreements, on 1 January 2014, which rendered the previous monetary agreement unnecessary. On 22 February 2007, Saint Barthélemy and Saint Martin were politically separated from the French Outermost region Guadeloupe to form two new French overseas collectivities; this caused their status in the EU to be in legal limbo until ratification of the Treaty of Lisbon reaffirmed both territories remained in the EU. The euro continued to be used in both territories throughout this time without incident; when Saint Barthélemy subsequently became an overseas territory of the European Union on 1 January 2012, changing its status to an OCT, the territory had to sign a monetary agreement to continue using the euro. With the adoption of the euro by Cyprus per 1 January 2008, the Sovereign Base Areas of Akrotiri and Dhekelia, which had used the Cypriot pound decided to adopt the euro.
The base areas are an overseas territory of the United Kingdom, an EU member state which itself does not use the euro, but these bases are outside of the EU and under military jurisdiction. Their laws and currency have been aligned with those of the Republic of Cyprus, leading to the euro's adoption in the two areas. Montenegro and Kosovo have used the euro since its launch, as they used the German mark rather than the Yugoslav dinar. Unlike the states above, they do not have a formal agreement with the EU to use the euro as their currency, have never minted marks or euros. There were political concerns that Serbia could use the currency to destabilise these territories so they received Western help in adopting and using the mark, they switched to the euro. In North Kosovo, populated by the Serbian minority, the Serbian dinar, which replaced the Yugoslav dinar, continues to be used despite its lack of recognition or use elsewhere in Kosovo