Economic and Monetary Union

What treaty is central to the Economic and Monetary Union?

The Maastricht Treaty.

What does EMU require from participating EU states?

It involves coordination of economic policies, fiscal rules and, for euro members, acceptance of the monetary policy set by the European Central Bank.

What is fiscal policy?

Fiscal policy involves government decisions concerning taxation, government spending, borrowing, debt and deficits.

What is monetary policy?

Monetary policy involves controlling interest rates and the money supply to influence economic conditions.

What is the European Central Bank (ECB)?

The ECB is the central bank responsible for monetary policy for the euro area and acts as a central supervisor of financial institutions.

What is the benefit of a single currency?

A single currency can reduce transaction costs, encourage trade and increase economic integration.

How can EMU increase economic stability?

Coordination and common rules can encourage greater fiscal discipline and economic cooperation.

How can EMU increase growth and employment?

A more integrated European economy can increase trade, investment and economic opportunities.

What is a disadvantage of EMU?

Member states lose some independent control over monetary policy when they adopt the euro.

Why can a single monetary policy be difficult?

Different economies may require different interest rates or monetary policies at the same time.