Monetary integration was the cornerstone of economic and monetary union under the Maastricht Treaty (hereafter referred to as EMU 1.0), but ultimately it provided an insufficient basis. This included delegation of monetary policy to an independent central bank but precluded a lender of last resort, bailing out other member states, and the funds and institutional support for crisis management. Moreover, EMU 1.0 largely retained member state competences in fiscal policy, financial supervision and economic policy. The revised monetary union (EMU 2.0) contains some of these elements, but does this make it a “genuine economic and monetary union” (Van Rompuy 2012)? This chapter traces the evolution of EMU, drawing on both the economic and political logic behind it. Issues concerning markets, governments and democracies will be considered in regard to economic ideas relating to how markets function, government incentives for pursuing specific policies, and how domestic politics, particularly in Germany, influenced monetary union’s development. The various competences accrued, and institutional developments, will also be covered.
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