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Reference scenario: Madrid European Council

This summary has been archived and will not be updated, because the summarised document is no longer in force or does not reflect the current situation.

Reference scenario: Madrid European Council

The European Council, meeting in Madrid on 15 and 16 December 1995, confirmed that the third stage of Economic and Monetary Union (EMU) would commence on 1 January 1999, in accordance with the convergence criteria, timetable, protocols and procedures laid down in the Treaty establishing the European Community.


The name of the new currency was an important element in the preparation of the transition to the single currency since it partly determined the public acceptability of Economic and Monetary Union. The European Council considered that the name of the currency had to be the same in all the official languages of the European Union, taking into account the existence of different alphabets; it had to be simple and to symbolise Europe.

The European Council therefore decided that, as of the start of stage three, the name given to the European currency would be "euro". This name was meant as a full name, not as a prefix to be attached to the national currency names.

The specific name euro is to be used instead of the generic term "ecu" used by the Treaty to refer to the European currency unit. The Governments of the fifteen Member States agreed that this decision was the approved and definitive interpretation of the relevant Treaty provisions.


As a decisive step in clarifying the process of introducing the single currency, the European Council adopted the scenario for the changeover to the single currency, which was based on the draft prepared at its request by the Council, in consultation with the Commission and the European Monetary Institute.

The scenario provided for transparency, served to strengthen credibility and underlined the irreversibility of the process. It aimed to provide for the necessary legal certainty, to minimise adjustment costs and to avoid competitive distortions. By announcing concrete measures to be taken according to a clear timetable, the scenario offered economic operators the information necessary for them to adapt to the introduction of the single currency.

The reference scenario comprised three successive phases that take account of users´ capacity to adjust.

Phase A: Launch of Economic and Monetary Union

On 1/2 May 1998 the Council, meeting at the level of the Heads of State or Government, would designate, in accordance with the procedure laid down by the Treaty, the Member States which had achieved a sufficient degree of convergence to participate in EMU. Data for 1997 would form the basis of this "transition examination". In May 1998 the Council (Economic and Financial Affairs) would announce the bilateral parities between participating currencies. However, the final conversion rate between the national currencies and the euro would not be known until 31 December 1998.

Once the list of participating countries was known, the Governments of those Member States were obliged to adopt unanimously a number of legal provisions and appoint the Executive Board of the European Central Bank (ECB). As soon as this was done, the ECB and the European System of Central Banks would be established.

The conditions for conducting the single monetary and exchange-rate policy would then be set out and the production of euro banknotes and coins could begin. The coins would range from 0.01 to 2 euro and the notes from 5 to 500 euro.

In the participating countries throughout this phase, the entire economic system would continue to function on the basis of the national currencies. However, preparations for the changeover to the euro would intensify, particularly in government and local government departments and in financial institutions.

Phase B: Effective start of Economic and Monetary Union

Phase B (and with it the third stage of EMU) began on 1 January 1999 with the irrevocable fixing of conversion rates among currencies of participating countries and against the euro. This phase has a three-year duration.

From this point on, the euro would be a currency in its own right and its external value would be that of the official ecu basket, which would cease to exist.

The ESCB, composed of the ECB and the national central banks, would become operational. It would formulate and implement monetary and exchange-rate policy in euros (fixing of short-term interest rates, intervention vis-à-vis the dollar and the yen, etc.). Exchange-rate quotations of participating national currencies would disappear.

Large-value payment systems (interbank, money, exchange and capital markets), such as the TARGET system managed by the ESCB, would operate in euros. New issues of public debt would also be denominated in euros.

During this phase, however, the euro would remain a book currency only; notes and coins in circulation would still be denominated in the national currency. The major retail payment systems (direct debit, payment card, cheque, etc.) would be adapted so that they could operate in euros. The use of the euro would therefore be possible but not yet obligatory.

Phase C: General introduction of the single currency

On 1 January 2002 euro notes and coins would start to circulate alongside national notes and coins. Euro notes and coins would be legal tender, and national notes and coins would gradually be withdrawn.

All monetary transactions would be denominated in euros. In contracts, references to national currencies would be converted into euros at the irrevocably fixed conversion rates, without there being any other change in the terms and conditions laid down (continuity of contracts).

This phase should last only as long as is strictly necessary in order to minimise the complications for users of prolonged dual circulation. The Member States could decide to shorten this period. In any event, by 1 July 2002 at the latest, national notes and coins would cease to be legal tender and could therefore no longer be used as means of payment.

The process of changing over to the euro would then be complete: from this date, the entire economic systems of the participating countries would operate exclusively in euros. For a certain period, old national notes and coins could still be exchanged free of charge at the national central banks.

Last updated: 20.06.2006