EMU is not just some abstract concept dreamed up by a few people. It is based on solid economic grounds. When the exchange rate stability provided by the Bretton Woods system and by the barriers between national financial markets disappeared in the 1970s, a number of European governments became progressively convinced of the need for a single currency. The Maastricht Treaty is indeed the result of past major initiatives, such as the Werner Report in 1970 and the Delors report in 1989. BIS Review 63/1997  -5-  The removal of all tariff and non-tariff barriers to trade has made Europe the largest market in the world. The EU accounts for 21% of total world trade, against 17% for the US and 10% for Japan. The benefits of the sheer size of the Single Market are plain to see. The allocation of savings and investments is more efficient, competition is stronger, and the greater liquidity of financial markets makes more capital available at lower cost to finance profitable ventures. No doubt the European Monetary System and its Exchange Rate Mechanism have helped curb exchange rate instability and eradicate the inflation culture that prevailed in some countries; yet the current level of economic and business integration calls for the Europeans to take a further step towards monetary integration, for the benefit of all European economic agents and citizens. The benefits of the single currency are clear. It will reduce uncertainty and facilitate production and investment decisions.
EMU requires a sound legal basis to foster the credibility of the changeover to the single currency. The Madrid European Council asked the Commission to prepare a draft Council regulation on the legal framework for the use of the euro. This regulation is of the utmost importance. Market participants need legal certainty, not only as regards the new instruments in euro, but also as regard the continuity of instruments denominated in the former national currencies or in ECU. Besides financial markets, legal certainty is also important for citizens, as the emergence of a new currency is inevitably, at the first stage, a source of uncertainties. In this respect, technical preparatory work on the legal framework for the use of the euro is almost achieved. The European regulations that have been drafted and should be endorsed by the European Council in Amsterdam clearly state that the euro will be the BIS Review 63/1997  -6-  currency of the European monetary union as from the 1.1.1999 . As a consequence, the national currencies, in particular notes and coins, will continue to circulate during a transitional period, as subdivisions of the euro. Two other key elements are that the changeover will ensure the continuity of existing contracts denominated either in national currencies or in ECU and that the ECU will become the euro at a rate of 1 to 1. Besides legal security, EMU will reinforce monetary stability in Europe. The Maastricht Treaty provides for a monetary framework very similar to that prevailing in Germany and in France.