The decision to form an Economic and Monetary Union (EMU) was taken by the European Council in the Dutch city of Maastricht in December 1991 and was later enshrined in the Treaty on European Union (the Maastricht Treaty). Launched in 1992, EMU involves a single monetary policy, and a single currency, the euro and the coordination of national economic and fiscal policies. Whilst all 27 EU Member States take part in the economic union, 19 countries have taken integration further and adopted the euro. Together, these countries make up the euro area.

A monetary union requires a sufficient degree of economic convergence for its sustainability. In a context where the euro area is not a federal state and the balance of payments remain national, within EMU, national economic policies are subject to a European coordination and surveillance framework. EU surveillance of the economic policies of its Member States is organised in an annual cycle, known as the European Semester. Adopted in 1997, the Stability and Growth Pact (SGP) was also created to enhance the Treaty provisions on fiscal sustainability. EU countries must meet 2 criteria: their budget deficit must not exceed 3% of gross domestic product (GDP); public debt (government debt & that of public agencies) must not exceed 60% of GDP.

To respond to the COVID-19 pandemic, the general escape clause of the Stability and Growth Pact (SGP) was activated in March 2020, to allow temporary departures from the budgetary constraints that normally apply under the European fiscal framework. In October 2021, the European Commission presented a Communication relaunching the public debate on the review of the EU economic governance framework. The aim is to build a broad-based consensus on the way forward well in time for 2023.

Countries can successfully function in a Monetary Union even with different income levels as long as they avoid excessive macroeconomic imbalances. Following the 2008 crisis, the Macroeconomic Imbalance Procedure (MIP) was introduced in the EU economic framework (2011) to identify and address macroeconomic imbalances and declining competitiveness.

In spite of various improvements in recent years – creation of the crisis management tool (European Stability Mechanism), implementation of the Banking Union…- the economic governance structure of EMU continues to suffer from some weaknesses and imbalances: the convergence trends between Member States have proved partly illusory and financial fragmentation remains a key challenge. Economic policy decisions are subject to too soft coordination at the European level, which create gaps in the implementation of sound economic policies. Against this background and in the context of the COVID economic crisis, further steps are expected to complete the EMU architecture and improve its resilience.