Iv. Challenges for Monetary and Fiscal Policies in the Euro Area

With the Treaty on European Union, signed in 1992, the Union set for itself the objective of establishing the European Economic and Monetary Union (EMU), ultimately including a single currency. Sustained convergence in economic performance and close co-ordination of Member States’ economic objectives, set out in a timetable, were key elements of this process. Convergence towards low rates of inflation and a sound fiscal position were the two most important criteria to be fulfilled before countries could join monetary union. By mid-1998, eleven out of the fifteen member countries had qualified and agreed to participate from the outset in the project. At the Community level, policy co-ordination has been strengthened over the past five years with the annual “broad economic policy guidelines” and the “excessive deficit procedure”, while the European Monetary Institute laid the groundwork for the start of the European System of Central Banks (ESCB).