Monetary policy is a key element in the economic strategy of the economic and monetary union (EMU). As it is one of the most sensitive policies, the Treaties establishing the EU made special references to these issues. In fact, the Maastricht Treaty is almost entirely about EMU. Integration of monetary policies in the EU is necessary not only for the stability of rates of exchange, prices, balances of payments and investment decisions, but also for the protection of the already achieved level of integration, as well as for the motivation for further integration in the future.
Relatively small countries may have an incentive to integrate into the monetary field in order to avoid domination by large countries. The joint money may overcome the disadvantage (vulnerability on external monetary shocks) of atomized currencies and it may become a rival to the monies of larger countries in international currency markets. A common currency among the integrated countries may become an outward symbol, but it is not a necessary condition for a successful monetary union.
A monetary system between countries should be distinguished from a monetary union. Countries in a monetary system link their currencies together and act as a single unit in relation to third currencies. A monetary union among countries is an ambitious enterprise. It exists if there is either a single money (de jure EMU) or an irrevocable fixity among the rates of exchange of the participating countries together with a free mobility of goods and factors (de facto EMU). This prevents any alterations in the rates of exchange as indirect methods of non-tariff protection or a subsidy to exports. It also means that the member countries should seek recourse to the capital markets in order to find funds to cover their budget deficit. Within an EMU, it should be as easy, for example, for a Frenchman to pay a German within Europe, as it is for a Welshman to pay an Englishman within the United Kingdom (Meade, 1973, p. 162).
A monetary union requires: convertibility (at least internal) of the participating countries’ currencies; centralization of monetary policy; a single central bank or a system of central banks that control stabilization policies; unified performance on the international financial markets; capital market integration; identical rates of inflation; harmonization of fiscal systems; replacement of balance-of-payments disequilibria with regional imbalances; similar levels of economic development or a well-endowed fund for transfers of real resources to the less developed regions; continuous con-