The Single Currency and its Treaty Framework


A. Introduction


B. Treaty Provisions


C. The Madrid Scenario


A. Introduction


It is now proposed to consider the provisions established for the creation of the euro pursuant to the terms of the Treaties. It will also be necessary to consider certain initiatives—in particular, the so-called ‘Madrid Scenario’—which followed the original ratification of the Treaty on European Union. However, purely as a matter of convenience, the Council Regulations which were introduced pursuant to the relevant Treaty provisions will be held over to the next chapter.


It was noted earlier that any change in the nature or denomination of a national monetary system involves the establishment of a legal basis for the conversion of debts expressed in the former currency into its replacement.1 This position necessarily followed from the role which the State and its legislative processes must play in the definition of a monetary system.2 In addition, it has been shown that notes and coins can only enjoy the status of legal tender if it has been conferred upon them by legislative act.3 It will be seen that the creation of monetary union reflected and respected these requirements. Although the original use of the ECU as the foundation of the single currency does cloud this point in some respects, it should not be allowed to obscure it.4

B. Treaty Provisions


It is now necessary to identify those provisions which were introduced into the EC Treaty pursuant to the Treaty on European Union and which may be said to be of a wholly or partially monetary character.5 Since we are here concerned with monetary matters, it will be necessary to refer back to some of the earlier provisions of the EC Treaty that dealt with the original creation of the euro, even though it has been possible to repeal a number of such provisions following the commencement of the Third Stage of EMU and as the euro became more established.


First of all, Article 118 of the EC Treaty6 provided that:

The currency composition of the ECU basket shall not be changed.

From the start of the third stage, the value of the ECU shall be irrevocably fixed in accordance with Article 123(4).


In accordance with suggestions originally made in the Delors Report, the ECU was to form the monetary cornerstone of the EMU project; indeed, subject to its rebranding as the ‘euro’, the ECU is the single currency of the eurozone.7 It has also been shown that—under the arrangements applicable to it—the composition of the ECU basket could be revised on a five-yearly basis; the last review had occurred in 1989.8 But if the ECU was to provide the foundation of the new monetary unit, then it was necessary to ensure that the foundation was a solid one which could command the confidence of the financial markets. It should be recalled in this context that the Treaty on European Union was signed on 7 February 19929 and that a five-yearly adjustment of the composition of the ECU basket would otherwise have occurred in 1994; in the interests of certainty and stability, a further review was thus precluded by the first sentence of Article 118. This did not merely have the effect of prohibiting a realignment of the currencies then within the ECU basket; it also prevented the admission to the basket of those Member States (ie, Austria, Finland, and Sweden) which joined the Union at a later date. The second sentence of Article 118 appears to have no independent legal significance, in that it merely cross-refers to the fact that the value of the ECU will be irrevocably fixed at the beginning of the third stage in accordance with the provisions of Article 123(4). It is thus appropriate immediately to move to a consideration of that Article.


Article 123(4) of the EC Treaty10 provided that:

At the starting date of the third stage, the Council shall, acting with the unanimity of the Member States without a derogation, on a proposal from the Commission and after consulting the ECB, adopt the conversion rates at which their currencies shall be irrevocably fixed and at which irrevocably fixed rate the ECU shall be substituted for these currencies and the ECU will become a currency in its own right. This measure shall by itself not modify the external value of the ECU. The Council acting by a qualified majority of the said Member States, on a proposal from the Commission and after consulting the ECB, shall also take the other measures necessary for the rapid introduction of the ECU as the single currency of the Member States.


This provision requires rather more detailed analysis. In monetary terms, it will be seen that Article 123(4) had three consequences:

(1) It provided for the euro11 to become ‘a currency in its own right’. Thus was the creation of the euro clothed with the required legal force. It is true that the currency was created from a pre-existing ‘basket’ of currencies which could not itself properly be called ‘money’, but this cannot in any way affect the status of the euro as the currency of the eurozone. At a later stage, it was felt necessary to confirm that contractual and other references to the ‘basket’ ECU would be replaced by references to the euro on a one-for-one basis.12 Yet in fact this was not strictly necessary, for under the terms of Article 123(4) of the Treaty, the ECU itself became the single currency of the eurozone Member States. The subsequent decision to rename the unit was—at least from a legal perspective—simply a rebranding exercise, and it did not result in the creation of a new monetary unit which was separate from the ECU itself. The requirement that references to the ECU should be replaced by references to the euro on a one-to-one basis thus had the same effect as (say) a provision requiring one pound to be substituted for another. There was only one monetary unit, not two, so the question of substitution did not strictly arise.13

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