The Maastricht Treaty mentions EMU and refers to it together with the Single Market as one of the means by which the Union will promote economic and social progress that is balanced and sustainable. The treaty refers to the irrevocable fixing of a single currency, the ECU, and a single monetary policy and exchange rate policy.

The first stage began on 1 July 1990 with the removal of exchange controls in 8 of the then 12 Member States, the inclusion in principle of all curren

The European Union has made a giant leap with the adoption of the euro. It has experienced some turbulence, but with sound policies and a willingness to work through any future problems, EU can ultimately prosper. The euro has caused a new financial optimism in Europe and around the world. If the EU can integrate its member nations' financial policies, the euro will be second only to the dollar. Time, ultimately, will show the outcome of all the work put into ensuring the continued health of the euro and the EU member nations.

Those countries that qualified undertook stage 3 of EMU in early 1999. At the beginning of Stage 3 the participating states adopted the 'irrevocably fixed' rates at which the Euro was to be substituted for national currencies. Stage 3 also entailed the creation of a European System of Central Banks (ESCB), composed of the European Central Bank (ECB) and representatives of the national central banks.

At the world level, the euro will eventually bring great benefits. US companies rarely have to bear an exchange-rate risk. Whether their customers or suppliers are situated in Russia, Argentina or China, their invoicing is almost always in dollars. European firms will in future benefit from the same type of advantages with the euro. They will be able to invoice in the currency in which their costs are expressed. They will thus be better placed to face world competition. Their efforts to boost productivity will no longer run the risk of being nullified by a currency shock.

For the single currency euro to come anywhere near matching the dollar as a reserve currency, the world will have to be convinced of the durability and success of the single economy upon which it is based. One key question, therefore, is whether the euro will encourage faster European growth or will reinforce the austere macroeconomic policies that have resulted in high levels of unemployment. The answer, in turn, depends on whether the ECB can absorb the lesson of the recent American experience, which is that non-inflationary full employment can be achieved through sustained low interest rates. This is not just an issue for Europeans. If Europe cannot grow faster, the global economy may not be able to avoid another crisis - this one caused by the inevitable drop in the value of the dollar.

Eventually, EMU proponents say, the euro will become a world reserve currency, much like the dollar. It will take quite a while for the euro to become widely used as a reserve currency. People accept dollars for the same reason they accept gold, because they believe that other people will always accept them. There are several reasons for this belief. The size of the U.S. market and its ability to grow larger, which gives people confidence that they will always be able to buy with dollars valuable things that America produces. Another reason is faith, based on U.S. political stability and on the relative transparency of American political and financial institutions, that there will always be an U.S. government willing and able to redeem its dollar-denominated securities. Finally, a large enough supply of dollars in the world so that one can always buy and sell them. In part, there are so many dollars available because the United States has been running trade deficits for so long. For markets priced in dollars, the change may be slower, which could prove beneficial to the euro. The euro could be overvalued relative to the dollar, leading to a decline in European competitiveness and a rise in unemployment.

Some common words found in the essay are:
Cap Gemini, Bank ECB, Report EMI, Eventually EMU, Monetary Union, Wim Duisenberg, Western Hemisphere, Argentina China, Disagreements ECB's, Europeans Europe, monetary policy, single currency, reserve currency, exchange rate, monetary targeting, single market, price stability, money supply, european firms, central banks, european central bank, direct inflation targeting, economic monetary union, national central banks, central bank ecb,
Approximate Word count = 4135
Approximate Pages = 17 (250 words per page double spaced)