What is the EMU?
EMU is short for Economic and Monetary Union. It will start on January 1, 1999. This is what the countries of the EU have agreed in Maastricht in 1991. The exchange rates of their currencies will be linked to one another. All countries conforming to the criteria for joining the EMU, automatically become members of the EMU, except two, Britain and Denmark. You can read more about this here. There are four criteria that each country has to meet. They are:
1. Low inflation This means that the rise of the price of daily food may not be higher than 1,5 percentage point above the inflation rate of the three EU-countries with the lowest inflation.
2. Low interest rates Interest on long-term government loans may not be higher than two percentage points above the interest rates of the three countries with the lowest interest rates.
3. Sound state finances The budgetary deficit must either be lower than 3% of national income, or be falling and almost have reached 3%, or be of a transitory nature. The deficit must also be lower than 60% of national income, or be falling at a sufficient rate towards the 60% mark.
4. Stable exchange rate The treaty states that the exchange rate must have stayed within the normal boundaries of the exchange rate mechanism of the EU countries - also called the EMS countries - for two years. The country must have been a member of this mechanism for the same period.
Next to these four criteria, all countries must have adapted their Central Bank laws.