Introduction

The first decade of economic and monetary union in Europe (EMU) has been a resounding success. EMU has brought significant benefits to its member countries: it has led to remarkable macroeconomic stability and accelerated trade and, in particular, financial integration in the euro area. However, imbalances within EMU—differences in growth, inflation, competitiveness, current account and budget balances—have also increased during the last 10 years, and the global economic crisis has made these imbalances and their economic implications more visible and challenging.

The crisis may be seen as the acid test for EMU. Much like other major industrialized economies, the euro area is living through the most severe recession in our lifetime. Thanks to the successful first decade of EMU, the euro area and its Member States are today in a much better shape to weather these truly testing times than ever before. The euro has protected EMU members during the crisis, and arguments that the crisis would lead to a breakup of the monetary union are neither new nor convincing. In fact, the crisis has made EMU even more, not less, attractive, and most EU countries that are not yet members of EMU are keen to join in the foreseeable future. However, for the Member States in the euro area, the introduction of the euro is no panacea.

There are important policy lessons to be learned from the crisis. Policy coordination among the EMU members should be improved and structural reforms accelerated, the framework for the supervision of financial markets strengthened, and external representation streamlined. With the necessary political will, the crisis can be a catalyst for deeper and broader economic coordination and surveillance in the euro area.

Section 2, drawing extensively on the European Commission's seminal report “EMU@10: Successes and Challenges after 10 Years of Economic and Monetary Union,”¹ reviews the main achievements and shortcomings of EMU in the first decade and highlights the main challenges to its smooth functioning, which were identified well before the crisis broke out. The third section tries to answer the question whether the euro facilitated the spread of the crisis in Europe or whether and to what extent it provided protection. Section 4 recalls recent euro-area accessions and explores the prospects for the further enlargement of the euro area. Section 5 draws lessons from the analysis for the further functioning and development of the euro area.

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