Economic and monetary affairs

The EU countries coordinate their national economic policies so that they can act together when faced with challenges such as the current economic and financial crisis. 17 countries have pushed coordination even further by adopting the euro as their currency.

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All EU countries are part of the economic and monetary union (EMU), the framework for economic cooperation. The joint aims are:

to promote growth, jobs and a higher level of social welfare for all
to respond to global economic and financial challenges in a coordinated way
to make EU countries more resilient to external shocks.

Couple sending money online © Imageselect

Sending money to children studying abroad is cheaper thanks to the EU.

Coordinated response to the crisis

Since the current financial and economic crisis began in October 2008, national governments, the European Central Bank (ECB) and the Commission have been working together to:

restore stability and create the right conditions for growth & job creation – coordinating intervention and supporting banks
protect savings – by increasing national guarantees for bank accounts to a minimum of €100 000 per customer and per bank
maintain a flow of affordable credit for businesses and households and
put in place a better system for financial governance.

So far, EU governments have pumped more than €1.6 trillion into the rescue effort.

To preserve the EU's financial stability and resolve tensions in euro area sovereign debt markets, the EU has also set up a safety net for EU members in difficulty: the European Stability Mechanism (ESM) now replaces former temporary tools and is the world's largest international financial institution. Together with contributions from the International Monetary Fund (IMF) it disposes of a financial stability capacity of up to €750 billion. It has become the permanent and integral part of the EU's comprehensive strategy to ensure financial stability in the euro area.

The benefits of the euro

Having the euro as a common currency for a large part of Europe has made it easier for the EU to react to the global credit crunch in a coordinated way and provided more stability than would otherwise have been possible. For example, the ECB was able to reduce interest rates for the entire euro area (instead of each country setting its own exchange rate), so banks throughout the EU now have the same conditions for borrowing from, and lending money to, each other.

The euro is used daily by more than 60% of EU citizens. The single currency benefits everybody:

people no longer need to change money when travelling or doing business within the euro area, saving time and transaction costs
it costs much less (or nothing at all) to make cross-border payments
consumers and businesses can compare prices more easily, which encourages businesses charging high prices to bring them down.

Being in the euro area is a guarantee of price stability. The ECB sets key interest rates at levels designed to keep euro area inflation below 2% in the medium term. It also manages the EU’s foreign exchange reserves and can intervene in foreign exchange markets to influence the exchange rate of the euro.

The euro for all Europeans

EU countries outside the euro area are expected to join, when their economies are ready. The countries that became EU members in 2004 and 2007 are gradually switching to the euro. Denmark and the UK have stayed outside the euro area under a special political agreement.

To join the euro area, a country's old currency must have had a stable exchange rate for two years. Other conditions also have to be met regarding interest rates, budget deficits, inflation rates and the level of government debt.

Cheaper cross-border payments

The ECB not only has the job of keeping prices stable, but also of ensuring that cross-border euro transfers are as cheap as possible for banks and their customers.

For very large sums of money, the ECB and national central banks operate a real-time payments system known as TARGET2. In future it will also offer the same advantages for transactions in securities.

The ECB and the European Commission are working jointly to create a Single Euro Payments Area (SEPA) to extend the benefits of more efficient and cheaper payments. Ultimately all euro payments, however they are made – by bank transfer, direct debit or card – will be treated exactly the same. It will not matter whether the payment is domestic or cross-border. The EU is currently extending the benefits to direct debit payments.

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