EU institutional law and policy - Essay Example

10 new countries that acceded to the European Union in 2004 (Hungary, Poland, the Czech Republic, the Slovak Republic, Slovenia, the Baltic states of Estonia, Latvia and Lithuania, and the Mediterranean islands of Malta and Cyprus), all intend to join third stage of the EMU in the next ten years, though their precise timing depends on various economic factors. Similarly, those countries who are currently negotiating for entry will also take the euro as their currency in the years following their accession.

Prior to adopting the euro, a member state has to have its currency in the European Exchange Rate Mechanism (ERM II) for two years. Cyprus, Denmark, Estonia, Latvia, Lithuania, Malta, Slovenia and Slovakia are the current participants in the exchange rate mechanism"(Economic and Monetary Union of the European Union, en.wikipedia.org, referred on 06.05.2006)1 The main objective of the euro is to maintain price stability within the European Union, and at the same time support EU general economic policies, such as the principle of an open market economy, with free competition.

"Within fiscal policy, the euro area countries must manage public finances so as to guarantee a sustainable growth, as envisaged in the EU Treaty. A Stability and Growth Pact was adopted, through which all Member States acknowledged the need of a sound fiscal policy for the smooth functioning of the EMU.The Pact comprises three legally binding elements:A resolution passed by the European Council that lays down a firm commitment of its Member States, Commission and the Council to implement the Stability and Growth Pact.

A Council regulation that calls for the strengthening of the surveillance of all budgetary positions and co-ordination of economic policies. The key features of these programmes are the specification of national medium- term budgetary targets set close to balance or in surplus. This allows countries to pursue anti-cyclical fiscal policies without breaching the 3% reference value of the deficit.The Stability and Growth Pact is a Council regulation on speeding up and clarifying the implementation of the excessive deficit procedure.

If there are no exceptional circumstances and the deficit is considered excessive, the Council will immediately issue a recommendation to the Member State concerned. A maximum of four months is then allowed for the country to take effective action to correct the situation. If the Council considers that the measures are not effective, the next step of the procedure will be engaged" (Stability and Growth Pact, www.bportugal.pt, referred on 06.05.2006)2As trade between the EU Member States mounted, the member states found EMU as the natural complement of the single