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Economic and monetary affairs

Stability and growth 

Within a single market and major trading bloc like the EU, it makes good sense to coordinate national economic policies. This enables the EU to act rapidly when faced with challenges such as the current economic and financial crisis. Seventeen countries have pushed coordination even further by adopting the euro as their currency.

The framework for cooperation on economic policy is the economic and monetary union (EMU), which all EU countries are part of. It is the framework within which countries agree on common guidelines on issues that affect the economy. The overall result is more growth, more jobs and a higher level of social welfare for all. In addition, this cooperation enables the EU to react to global economic and financial challenges in a coordinated way and makes it more resilient to external shocks.


Tackling the crisis together

The EU has taken a coordinated response to the current financial and economic crisis since it began in October 2008. National governments, the European Central Bank (ECB) and the Commission have been working together to protect savings, maintain a flow of affordable credit for businesses and households, and put in place a better system for financial governance. The aim is not just to restore stability, but also to create the conditions for growth and job creation.

So far, EU governments have pumped more than €2 trillion into the rescue effort. EU leaders have coordinated interventions, supporting banks and allowing guarantees for lending. The EU has also increased national guarantees for individuals’ savings accounts to a minimum of €100 000.

In addition, a package of European Stabilisation Actions was put in place in May 2010, providing financial assistance to EU members in difficulty and thereby preserving the financial stability of the EU amid severe tensions in euro-area sovereign debt markets. The safety net consists of the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF). Together with contributions from the International Monetary Fund (IMF) it provides a financial stability package of up to €750 billion. A new permanent crisis mechanism, the European Stability Mechanism (ESM), will be set up in the euro area from mid-2013. (linka í hitt svarið)

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, as the ECB was able to reduce interest rates for the entire euro area (instead of each country setting its own exchange rate), 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: the cost of changing money when travelling or doing business within the euro area has disappeared; the cost of making cross-border payments has in most cases either disappeared or been reduced significantly; consumers and businesses can compare prices more readily, which stimulates competition.

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

All EU countries are expected to introduce the euro, but only when their economies are ready. The countries that became EU members in 2004 and 2007 are therefore gradually joining the euro area, while Denmark and the United Kingdom do not currently use the euro due to special political agreements. 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.


Making cross-border payments cheaper

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.

A real-time payments system known as TARGET2 that is operated by the ECB and national central banks is already in place for very large sums of money. 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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*This text originates from the EU's official website:

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