The future of monetary union in the European Union

Abstract

The European Union (EU) emerged with the Treaty of Paris (1952) and the Treaty of Rome (1957) for the re-strengthening of Europe following WWII. The union, which was initially established as an economic union, namely, EEC, has been developed, expanded, and deepened over time, and became political with the Maastricht Treaty in 1992. The Maastricht Treaty, signed in 1992, transferred the power to create money to the European Central Bank (ECB). Thus, as of 2002, Euro banknotes and coins were released into circulation and the Eurozone was established. A common currency in Europe has created the money that member countries cannot create themselves. The ECB ensured a very low inflation rate within the Eurozone by implementing a tight monetary policy since the date it was established. Despite the monetary union, the targeted political unity has not been achieved. The most important reason underlying this involves both the system and the structure of the monetary union. Because national autonomy exists and responsibility is assumed by political finance. Accordingly, the member countries borrow in a currency that they cannot create. On the one hand, the ECB has to purchase government bonds during the debt crisis. On the other hand, the ECB becomes more and more the “lender of last resort” in this regard. This role is not in compliance with its legal basis.