INTRODUCTION

The creation of a monetary union in Europe on January 1, 1999, was undoubtedly one of the largest macro- and politico-economic experiments in modern history. It was the capstone of the so-called Maastricht Process, designed to achieve macroeconomic convergence, which shaped monetary and fiscal policies in the countries striving for membership in the European Monetary Union (EMU) over much of the 1990s. The start of the EMU was marked by the conversion of member states' national currencies into euros and the beginning of the operations of the new Eurosystem, the new European Central Bank (ECB), and the national central banks of the participating states (national central banks). While euro cash rested in the form of the previous national currencies for the first three years, interbank and most noncash payments were denominated in euros from the start, and European financial markets quickly adopted the euro as their common unit of account. The replacement of the national currency signs by euro cash at the start of 2002 will complete the introduction of the EMU.

The new EMU has a combined population 11 percent larger than that of the United States and a combined GDP of 61 percent of U.S. GDP. Like the United States—and in sharp contrast to the individual member states—it is a fairly closed economy whose trade with third countries is about 20 percent of GDP.