Stage Two of EMU, establishment of the EMI and the ECB

The establishment of the European Monetary Institute (EMI) on 1 January 1994 marked the start of the second stage of EMU and with this the Committee of Governors ceased to exist. The EMI's transitory existence also mirrored the state of monetary integration within the Community. The EMI had no responsibility for the conduct of monetarypolicy in the European Union - this remained the preserve of the national authorities - nor had it any competence for carrying out foreign exchange intervention.

The two main tasks of the EMI:

to strengthen central bank cooperation and monetarypolicy co-ordination, and

to make the preparations required for the establishment of the European System of Central Banks (ESCB), for the conduct of the single monetarypolicy and for the creation of a single currency in the third stage.

To this end, the EMI provided a forum for consultation and for an exchange of views and information on policy issues and it specified the regulatory, organisational and logistical framework necessary for the ESCB to perform its tasks in Stage Three.

About the EMI's preparatory work

In December 1995 the European Council agreed to name the European currency unit to be introduced at the start of Stage Three, the 'euro', and confirmed that Stage Three of EMU would start on 1 January 1999. A chronological sequence of events was pre-announced for the changeover to the euro. This scenario was mainly based on detailed proposals elaborated by the EMI.

ERM II

At the same time, the EMI was given the task of carrying out preparatory work on the future monetary and exchange rate relationships between the euro area and other EU countries. In December 1996 the EMI presented its report to the European Council, which formed the basis of a Resolution of the European Council on the principles and fundamental elements of the new exchange rate mechanism (ERM II), which was adopted in June 1997.

The new banknotes

In December 1996 the EMI also presented to the European Council, and subsequently to the public, the selected design series for the euro banknotes to be put into circulation on 1 January 2002.

Stability and Growth Pact

In order to complement and to specify the Treaty provisions on EMU, the European Council adopted the Stability and Growth Pact in June 1997 - two Regulations form part of the Stability and Growth Pact, which aims to ensure budgetary discipline in respect of EMU. The Pact was supplemented and the respective commitments enhanced by a Declaration of the Council in May 1998.

Initial participants

On 2 May 1998 the Council of the European Union - in the composition of Heads of State or Government - unanimouslydecided that 11 Member States had fulfilled the conditions necessary for the participation in the third stage of EMU and the adoption of the single currency on 1 January 1999. The initial participants were Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. The Heads of State or Government also reached a political understanding on the persons to be recommended for appointment as members of the Executive Board of the European Central Bank (ECB).

Preparation for fixing the conversion rates

Also in May 1998, the ministers of finance of the Member States adopting the single currency agreed together with the governors of the national central banks of these Member States, the European Commission and the EMI that the current ERM bilateral central rates of the currencies of the participating Member States would be used in determining the irrevocable conversion rates for the euro.

Appointment of decision-making bodies

On 25 May 1998 the governments of the 11 participating Member States appointed the President, the Vice-President and the four other members of the Executive Board of the ECB. Their appointment took effect from 1 June 1998 and marked the establishment of the ECB. The ECB and the national central banks of the participating Member States constitute the Eurosystem, which formulates and defines the single monetarypolicy in Stage Three of EMU.

With the establishment of the ECB on 1 June 1998, the EMI had completed its tasks. In accordance with Article 123 (ex Article 109l) of the Treaty establishing the European Community, the EMI went into liquidation on the establishment of the ECB. All the preparatory work entrusted to the EMI was concluded in good time and the rest of 1998 was devoted by the ECB to the final testing of systems and procedures.

Stage Three of EMU, irrevocable fixing of exchange rates

On 1 January 1999 the third and final stage of EMU commenced with the irrevocable fixing of the exchange rates of the currencies of the 11 Member States initially participating in Monetary Union and with the conduct of a single monetarypolicy under the responsibility of the ECB.

The number of participating Member States increased to 12 on 1 January 2001, when Greece entered the third stage of EMU. Slovenia joined as the 13th member on 1 January 2007. Since those dates the central banks of the two countries have been part of the Eurosystem.
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