As happened with the first attempt at establishing an economic and monetary union in Europe, in 1971, the launch of the euro coincided with a highly adverse international economic and monetary situation: the terrorist attacks in New York and Madrid, the sizeable devaluation of the dollar, wars in Afghanistan and Iraq on Europe’s doorstep and high energy prices, probably related to these wars. In this adverse global situation, the euro has shielded the economies of the euro area from competitive devaluations, galloping inflation and an increase in the prices of imports, more than 60% of which come from other euro countries. It is highly probable that if European economies had not the shield of the euro, they would have been in a much worse situation than the one in which they found themselves when the euro became the strongest currency in the world.
Despite the adverse global situation, the second effort at creating a European economic and monetary union was an unquestionable success, particularly in view of the great challenge of the changeover to the single currency. Not only was the physical introduction of the euro a historic event, it also represented an unprecedented strategic, logistical and practical challenge. Despite these difficulties and the Cassandras' catastrophic prophesies, the euro was circulated successfully, thanks to an exemplary planning and cooperation of national and European authorities.
Moreover, in spite of the great advance of multinational integration brought about by the EMU, national sovereignties have not suffered unduly. The Member States, which have moved to the third stage of EMU, have undoubtedly lost the autonomy of their monetary policy, since they are no longer at liberty to use the two main levers of this policy - exchange rates and interest rates (a freedom which they had already lost to a large extent, due to the interdependence of the European economies). At the same time, however, they lost responsibility for the parity of their currency and the equilibrium of their balance of payments, while enjoying shared responsibility for the parity of the euro against the currencies of third countries and the equilibrium of the collective balance of payments of the euro-zone countries. However, balance of current payments constraints exist for the zone as a whole. Therein lies the importance of the close coordination of economic policies.
Price stability, which is a vital prerequisite for EMU, is also favourable to growth and the efficient use of the pricing mechanism for the allocation of resources. National budgetary policies and consequently government finances are subject to certain constraints anchored in the stability and growth pact. The most direct "static gain" of the EMU is the ending, within the unified market, of all transaction costs inherent in the use of several currencies, costs representing between 0.3 and 0.4% of the GDP of the Union. Travellers, who previously lost important amounts in the exchange of their currency for those of the countries they visited, should particularly welcome these gains. "Dynamic gains", which cannot be measured directly, could take two forms: those resulting from heightened productivity and those generated by the elimination of the uncertainties concerning the long-term evolution of exchange rates.
In addition, the euro allows a better balance of the international monetary system, dominated for half a century by the dollar, which serves as a reference currency for almost 60% of world trade, whereas American exports represent around 12% of world exports. Its economic and commercial weight (16% of world exports) entitles the Union to play an important role in the necessary review of the international monetary and financial system. This review should focus on methods of crisis prevention and management, improved governance of the international monetary and financial system, development assistance and debt relief for developing countries.
Since 2008, however, Europe and in particular the young eurozone suffer from the harmful consequences of the global recession. European economies suffered greatly from the global financial and economic crisis, which began with the subprime mortgages and the toxic mortgage backed securities, in the United States in mid-2008 and soon hit the whole world. As a result of these external and unpredictable circumstances, all EU Member States were hit by recession and rising levels of unemployment.
The global crisis demonstrated the weakness of the European economic and monetary union. It suffers, in particular, from disequilibrium between its strong monetary wing and its feeble economic one. The euro area is a monetary union working under a single monetary policy and coordinated but decentralised economic policies. While monetary policy management is the exclusive responsibility of the European Central Bank, economic and budgetary policies are a national prerogative. However, in an integrated monetary and economic zone, overspending and deficient restraint of inflation rates in some countries inflict a collective cost borne by all the countries sharing the same currency. This was revealed, at the end of 2009, when the Greek crisis, partly caused and amplified by the global crisis, touched other euro area countries and affected the euro itself [see section 7.3.2].
Despite the difficulties of decision-making between 17 Member States with different economic situations and, hence, different interests, many measures were taken, which were not provided by the Treaty on the Functioning of the EU and were considered unthinkable before the crisis and the attacks of the global markets on the weak-links of the eurozone and the euro itself. Within two years, from 2010 to 2012, were created: the European financial stabilization mechanism (EFSM) and the European Financial Stability Fund (EFSF) that led to the European Stability Mechanism (ESM). At the same time were created: a European System of Financial Supervisors (ESFS), which gathers entities exercising financial supervision at national and EU levels; the European Systemic Risk Board; the European Banking Authority; the European Insurance and Occupational Pensions Authority; and the European Securities and Markets Authority [see section 6.6]. At the same time was adopted the Euro Plus Pact, which aims to achieve a new quality of economic policy coordination, with the objective of improving competitiveness, thereby leading to a higher degree of convergence [see section 7.3.2]. The same goal is sought by the strategy "Europe 2020" and the "European Semester". Finally, it was decided to create a single banking supervisory mechanism and to allow the ESM to inject capital into banks directly, i.e. without the interference of governments and no cost to public budgets [see section 7.3].
The next steps that should be taken soon to complete the institutional framework of the economic union are: a single deposit guarantee scheme in all Member States; a single mechanism for assessing the financial risks; expansion of surveillance in risky financial products, such as hedge funds; and the creation of a European credit rating agency to break the American monopoly in this area. In parallel, the role of the European Central Bank should be expanded to enable it to pump fresh cash for the needs of the ESM and therefore of Member States and their banks. These steps will gradually open the way for the issue of Eurobonds, so that all euro area Member States could borrow from the world markets at the same rate, slightly higher than the rate at which borrows now Germany, which for this reason stubbornly refuses this essential step towards a true single economic policy.