The principles of the single market include free movement of capital between member states. Long ago, it became clear that the movement of capital could never become truly free as long as finances were tied to national currencies. It also became apparent that European integration would never be completely achieved as long as each member state had it own currency. Thus, the idea of the European Monetary Union was conceived as a way to further European integration.
The EMU was preceded by other attempts at monetary cooperation that fell far short of monetary integration. In 1979, the European Monetary System was founded under the leadership of the French. The EMS created a unit of European currency known as the European Currency Unit (ECU). The ECU was not truly a currency in its own right, but rather, was a weighted basket of European currencies. For instance, the Deutsche Mark accounted for 30.4% of its value, the French Franc 19.3%, and the British Pound 12.6%. The ECU was used strictly for internal accounting and was never used as a currency in its own right. EMS also included an exchange rate mechanism which attempted to keep member state currencies trading within specific margins. The mechanism set a particular range within which each currency should trade between other currencies and if that range was exceeded, there would be intervention in the market by EU institutions as well a member state central banks to try to restore the currency to its original range.
The EMU was established by the Maastrict Treaty signed in 1992. It set out the legal framework for the new monetary union and the criteria required for member states to join, called convergence criteria. These convergence criteria dealt with macroeconomic factors including national government budget deficits, debt ratios, exchange rates, long term interest rates, and price stability. There was much jockeying on the part of countries that wanted to participate but did...