One consequence of pricing in a single currency in all member countries will be to facilitate buyers of goods and services greatly in making price comparisons, and competition within the EU will certainly become more active than it has been until now. Economic and Monetary Union The EMU has a population of more than 300 million and accounts for 16% of global GDP. By way of comparison, the USA has a population of 280 million and accounts for 22% of global GDP. Exports of goods and services are equivalent to 19% of EMU GDP, while the corresponding figure for the USA is under 11%. Some 19% of total world merchandise exports come from the EMU, and 15% from the USA. Twelve of the fifteen EU nations belong to the EMU. The UK, Denmark and Sweden remain outside it, but their positions differ somewhat. Denmark and the UK have stated reservations about membership, on which they have reached agreement with other EU states. Sweden, on the other hand, has opted to remain outside the EMU, although no special reservations have been agreed upon for them. Denmark is involved in currency cooperation with the EMU, one aspect of which is that the exchange rate of the Danish krone may not deviate from the Euro by more than 2.25% from a defined central rate. Denmark therefore enjoys limited monetary independence.
This is reflected in the fact that the Danish Central Bank invariably alters its interest rates in the wake of announcements of changes in the European Central Bank (ECB) policy rate. Sweden and the UK have opted for inflation targeting as their monetary policy framework, which therefore does not have the objective of keeping these countries’ currencies stable against the Euro. European Central Bank The Maastricht Treaty stipulates monetary arrangements in the EMU. The EU countries created a framework for the ECB’s activities which was to some extent modelled on the Central Bank of Germany but differed in many ways from the arrangements in others. Various conditions were set which EU members had to fulfil in order to be granted EMU membership. On the one hand these related to major components of economic developments, such as inflation, fiscal deficit, government debt and interest rates. On the other hand they addressed the framework that the Maastricht Treaty lays down for monetary policy implementation in the EMU. This policy was consistent with growing support for the view that it was natural to set a simple target for central banks – i.e. promoting price stability – and to increase their independence from the political leadership in pursuing their main objectives, and to strengthen their financial independence. Another emphasis was that, at the same time as the central banks’ independence was strengthened, stricter demands would need to be made of them regarding transparency in their activities and actions, and regarding accountability towards the government and general public.