Stage three of EMU began on 1 January 1999 with the irrevocable fixing of conversion rates between the currencies of the participating countries and against the euro [Regulation 2866/98]. The ecu was replaced by the euro, and this became a currency in its own right, the currency of those Member States which participate fully in the single monetary policy (Article 123 TEC). Since that date, monetary policy and the foreign exchange rate policy have been conducted in euros, the use of the euro has been encouraged in foreign exchange markets and new tradeable public debt had to be issued in euros by the participating Member States. The participating Member States have a single monetary policy and a single currency - the euro [Regulation 974/98]. They are monitored by the European Central Bank (ECB), which replaced the European monetary Institute (provisional institution of the second stage) and formed together with the central banks of the Member States, the European System of Central Banks (ESCB) [see section 4.2.1]. Neither the ECB nor national central banks may seek or take instructions from governments or European institutions (Article 130 TFEU, ex Article 108 TEC).
All central banks, including those not participating in the single monetary policy, are members of the ESCB from the start of the third stage. The primary objective of the ESCB is to maintain price stability. In addition, the ESCB must support the general economic policies in the EU with a view to contributing to the achievement of the objectives of the common policies referred to in Article 3 of the TEU (Article 127 TFEU, ex Article 105 TEC). The basic tasks to be carried out through the ESCB are: to define and implement the monetary policy of the Union; to conduct foreign exchange operations consistent with the provisions of Article 219 TFEU (ex Article 111 TEC); to hold and manage the official foreign reserves of the Member States; and to promote the smooth operation of payment systems (Article 127 TFEU, ex Article 105 TEC). However, exchange policy with regard to the currencies of third countries (US dollar, Japanese yen, etc.) is determined by the Council after consultation of the ECB (Article 219 TFEU, ex Article 111 TEC).
The ECB can adopt regulations and take decisions necessary for carrying out the tasks entrusted to the ESCB (Article 132 TFEU, ex Article 110 TEC). National authorities must consult the ECB regarding draft legislation within its field of competence [Decision 98/415]. The ECB has powers to: apply minimum reserves and specify the remuneration of such reserves; impose fines and periodic penalty payments on firms for infringing its regulations or decisions [Regulation 2531/98]; and collect statistical information in order to carry out its tasks [Regulation 2533/98]. The ECB has the exclusive right to authorise the issue of euro bank notes within the EU. The ECB and the national central banks may issue such notes [Decision 2003/205]. Member States may issue euro coins subject to approval by the ECB of the volume of the issue (Article 128 TFEU, ex Article 106 TEC). The ECB must be consulted on any proposed European act and may submit opinions to European institutions or to national authorities on matters within its field of competence (Article 127 TFEU, ex Article 105 TEC). Decision 98/415 defines the scope and conditions of consultation of the Bank by national authorities concerning draft legislation within its field of competence.
The total independence of the European Central Bank is the cornerstone of the Union's monetary policy. According to the German concept, which has shown its worth through the independence of the Bundesbank, currency is something much too serious to let in the hands of politicians who, legitimately worried about unemployment, are tempted to manipulate the exchange rate or the interest rates to kick-start the economy without drawing on the lessons of the past. Democratic control can and must be exercised a posteriori by the dismissal of the governors of national central banks, members of the ECB board, who are judged by their governments to have failed in their task.
The capital of the ECB (initially 5 billion euro) is held by the national central banks in proportion to the individual countries' demographic and economic weight; it may be increased by such amounts as may be decided by the Governing Council of the ECB [Decision 98/382, Regulation 1009/2000 and Decision ECB/2010/26]. The external foreign reserves assets of the national central banks are pooled at the ECB within certain limits set in Article 30(1) of the Statute of the European System of Central Banks and of the European Central Bank; but the ECB, in case of need, may effect further calls of foreign reserve assets from the national central banks equivalent to an additional EUR 50 billion. The decision-making bodies of the ECB are the Governing Council and the Executive Board. The policy of the ECB aiming at ensuring price stability will be formulated by the Governing Council, which is composed of the fifteen Governors of the central banks of the euro area countries and of the members of the executive Board [see section 4.2.1]. However, as from the date on which the number of members of the Governing Council of the ECB exceeds 21, each member of the Executive Board will have one vote and the number of governors with a voting right will be 15. Voting rights are assigned to the governors under a rotation system [Decision 2003/223]. The executive Board, consisting of the President of the ECB, the Vice-President and four other members, appointed by decision taken by common agreement of the governments of the Member States, which have adopted the single currency, implement the ECB monetary policy and give the necessary instructions to the national central banks..
The Amsterdam European Council of 16 and 17 June 1997 adopted a Resolution laying down the firm commitments of the Member States, the Commission and the Council regarding the implementation of the Stability and Growth Pact [see section 7.3.2]. In this Pact Member States are committed to: respecting the medium term budgetary objective of "close to balance or in surplus" set out in their stability or convergence programmes; correcting excessive deficits as quickly as possible after their emergence; to make public, on their own initiative, recommendations made in accordance with Article 126 TFEU (ex Article 104 TEC); and not seeking an exemption from the excessive deficit procedure unless they are in severe recession characterised by a fall in real GDP of at least 0,75%.
The Amsterdam European Council also agreed two Regulations that form part of the Stability and Growth Pact for ensuring budgetary discipline in the third stage of EMU. These Regulations set out a framework for effective multilateral surveillance and give precision to the excessive deficit procedure. The first concerns the continuity of contracts, the replacement of references to the ecu in legal instruments by references to the euro at a rate of one for one, the conversion rates and rounding rules [Regulation 1103/97]. In addition to this Regulation, the Directive on consumer protection in the indication of prices of products offered to consumers [see section 11.3] sets down requirements concerning conversion rates, rounding rules, and the clarity and legibility of price displays. The second Regulation provided for the conditions in which the currencies of the participating Member States would be replaced by the euro from 1 January 1999 [Regulation 974/98].
A Regulation on denominations and technical specifications of euro coins intended for circulation provided that the first series of euro currency would consist of eight coins (1 cent, 2 cent, 5 cent, 10 cent, 20 cent, 50 cent, 1 euro and 2 euro) [Regulation 975/98]. In parallel with the introduction of the euro on 1 January 2002, bank charges for cross-border payments in euro were brought into line with those applying at national level for euro transactions [Regulation 924/2009]. The single euro payments area (SEPA) project aims to develop common Union-wide payment services to replace national payment services, providing Union citizens and businesses with secure, competitively priced, user-friendly, and reliable payment services in euro [Regulation 260/2012].
A Council Framework Decision aims at increasing protection against counterfeiting in connection with the introduction of the euro [Framework Decision 2000/383], while Regulations 1338/2001 and 1339/2001] lay down the measures necessary to this effect. Europol centralises and processes all information designed to facilitate the investigation, prevention and combating of euro counterfeiting [Decision 2005/511]. The Pericles exchange, assistance and training programme concentrates on promoting convergence of national measures so as to guarantee equivalent levels of protection of the euro against counterfeiting, on the basis of consideration of best practice [Decision 2001/923].
At the starting date of the third stage, on 1 January 1999, the exchange rate mechanism (ERM) has replaced the European Monetary System, in order to link currencies of Member States outside the euro area to the euro and help to ensure that they orient their policies to stability, foster convergence and thereby help them in their efforts to adopt the euro. However, the voting rights of these Member States in the Council are suspended for all questions relating to the single currency. A central rate against the euro is defined for the currency of each Member State outside the euro area participating in the exchange rate mechanism [European Council Resolution]. Accordingly, central rates are set for the "pre-in" currencies with a standard fluctuation band against the euro of 15% in either direction. Intervention at the margins will in principle be automatic and unlimited, with very short-term financing available, but the European Central Bank and the central banks of the other participants could suspend intervention if this were to conflict with their primary objective. On the other hand, formally agreed fluctuation bands narrower then the standard one and backed up in principle by automatic intervention and financing may be set at the request of the non-euro area Member State concerned [Resolution of the European Council].
At the start of the third stage of EMU, on 1 January 1999, the Economic and Financial Committee (EFC) replaced the Monetary Committee. The Member States, the Commission and the ECB may each appoint two members to the Committee [Decision 98/743]. This has the following tasks: to deliver opinions at the request of the Council or of the Commission, or on its own initiative for submission to those institutions; to keep under review the economic and financial situation of the Member States and of the Union and to report regularly thereon to the Council and to the Commission, in particular on financial relations with third countries and international institutions; to contribute to the preparation of the work of the Council on EMU; to examine, at least once a year, the situation regarding the movement of capital and the freedom of payments and to report to the Commission and to the Council on the outcome of this examination (Article 134 TFEU, ex Article 114 TEC). According to its statutes, the EFC prepares the Council's reviews of the development of the exchange rate of the euro and provides the framework for the dialogue between the Council and the European Central Bank [Decision 1999/8].
At 00.00 on 1 January 2002, the national currencies of the twelve Euro-zone States ceased to exist. National notes and coins could be used in most countries for a further eight weeks at the most, but it was no longer possible to make payments in the old national currency units by card, cheque or transfer. After this short period of dual circulation, during which the old notes and coins were exchanged for the new ones, old banknotes can be exchanged for a period of ten years only at central banks. The European institutions and the governments of the participating Member States had carefully planned and therefore succeeded the tremendous enterprise of the changeover to the euro.
It is indeed remarkable that the transition to the third stage of economic and monetary union was achieved smoothly in spite of turbulence on the world financial markets and the unprecedented logistical challenge [see section 7.4]. This was the result of prudent economic policies in the context of EMU. It was also the result of careful technical and legislative preparation. As seen in the preceding paragraphs, all European legislation necessary for the introduction of the euro was adopted before 1 January 1999 and everything happened according to the plans laid down by the common institutions. Thanks to the considerable efforts of all parties involved in this changeover (national administrations, central banks, financial institutions, the retail sector and the security transport sector), as well as the enthusiastic way in which citizens greeted the arrival of the notes and coins, the euro changeover was an unqualified success. Euro payments accounted for most of the cash payments made by the end of the first week in January 2002. By the end of the second week, very little national currency remained in circulation.
What the European and national authorities had not foreseen was the global financial and economic crisis that unfolded since 2008 [see sections 7.3 and 7.3.2]. A financial measure adopted a posteriori by the EU was a regulation creating a harmonised framework for coordinated action at European level, increasing transparency and reducing risks concerning short selling and certain aspects of Credit Default Swaps (CDS) [Regulation 236/2012, Regulations 826/2012 and 827/2012 and Regulations 918/2012 and 919/2012]. This Regulation empowers regulators – national and European - to act when necessary, thus preventing market fragmentation and ensuring the smooth functioning of the internal market.
The introduction of the euro was a major event for the international monetary system, whose cornerstone is the International Monetary Fund (IMF). The EU sought pragmatic solutions for introducing a major international currency into the system which did not require a change in the Articles of the IMF. Thus, the IMF Executive Board agreed to grant the ECB an observer position at that board. The views of the EU/EMU are presented at the IMF Board by the relevant member of the Executive Director's office of the Member State holding the Euro-zone Presidency, assisted by a representative from the Commission. The President of the ECB attends meetings of the G8 and G20 Finance Ministers' and Governors' Group for the discussions which relate to EMU, e.g. multilateral surveillance or exchange rate issues. At those meetings a Commission representative is a member of the EU delegation in the capacity of providing assistance to the President of Ecofin/Euro group.