The Euro

The Euro

Its Origins, Development and Prospects

Chris Mulhearn and Howard R. Vane

This important new book provides a non-technical, comprehensive overview of the central issues surrounding the euro. Following an introduction to the origins of European integration, the authors proceed to examine the first concrete steps in the process that led to the creation of the euro area. The book then explores the economics and architecture of the euro, highlights the issues surrounding enlargement, and reflects on the future of European monetary union. To help bring the subject matter alive, the book also contains interviews with leading academics in the field including Willem Buiter, Nick Crafts, Paul De Grauwe, Patrick Minford, Niels Thygesen, Andrzej Wojtyna and Charles Wyplosz.

Chapter 4: The Euro’s Architecture

Chris Mulhearn and Howard R. Vane

Subjects: economics and finance, financial economics and regulation, international economics, money and banking


Having discussed the development of the euro and its underlying economic principles in the previous chapter we now turn to consider the euro’s architecture, in particular the European Central Bank (ECB) its principal institution and the Stability and Growth Pact (SGP). We begin by considering monetary policy in the euro area. 4.1 4.1.1 MONETARY POLICY IN THE EURO AREA The ECB’s Decision-making Bodies You will recall from our discussion in Chapter 3, section 3.1.3, that the Maastricht Treaty established that the second stage of economic and monetary union (EMU) would begin on 1 January 1994 with the creation of the European Monetary Institute (EMI). The EMI, a temporary body, was superseded by the European System of Central Banks (ESCB) and the ECB, both of which were established on 1 June 1998 by the ‘Statute of the European System of Central Banks and of the European Central Bank’. The Statute is a protocol, which is attached to the Maastricht Treaty. In Chapter 3, section 3.1.4 we also discussed how the third and final stage of EMU began on 1 January 1999 when exchange rates were irrevocably fixed for the former national currencies of the then-11 participating member countries of the euro area. When the euro was officially launched responsibility for monetary policy in the euro area was transferred from the national central banks (NCBs) of euro-area member countries to the ECB. The ECB,27 with headquarters in Frankfurt am Main in Germany, has two main decision-making bodies: the Governing Council...

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