Euro: the international monetary system

20 March 2014
by eub2 -- last modified 20 March 2014

International organisations provide meeting points for the major economies to discuss common challenges and their solutions. As a result of the significant role of the euro in international financial markets, the institutions of the European Monetary Union (EMU) and the euro area are playing an increasingly important role in these discussions.

The economic strength of the euro area and the evolving use of the euro in the world economy have global consequences. Naturally, third countries that hold large euro reserves follow the monetary policy decisions of the European Central Bank (ECB) closely. And as the largest global trading bloc, the coordinated economic policies of the EU Member States can have significant consequences on trade and stability across the globe. This means that it is the combined policy mix of the euro-area Member States and the ECB that matters to the rest of the world.

In response, a more unified position on global economic issues is needed from the euro area. For this reason, the international role of the institutions of EMU and the euro area is growing. This role includes relations with organisations such as:

• The International Monetary Fund (IMF): The IMF, with 185 member countries, works to foster global monetary co-operation for stability, growth and jobs. As well as surveying the economies of individual euro-area Member States, IMF monitoring now includes a biannual review of the common monetary and exchange rate policy of the euro area as a whole. As only states are members of the IMF, the European Union is represented by its Member States. However, the Commissioner for Economic and Monetary Affairs participates in the annual and spring meetings of the Bretton Woods institutions on behalf of the European Commission.
• The World Bank: The World Bank is a vital source of financial and technical assistance to developing countries around the world. Therefore, development policy is a major activity of the World Bank, and also for the European Union, which makes substantial contributions to the debt-relief initiative for poor countries. For this reason, the European Commission coordinates Member States' relations with the World Bank to ensure a consistent approach to developing countries.
• The Organisation for Economic Co-operation and Development (OECD): The OECD represents 30 member countries worldwide, including many from the EU, that share a commitment to democratic governance and the market economy. The OECD produces research, forecasts and recommendations for economic development and social issues, including formulating multilateral agreements. The Commission participates in OECD working groups and committees, and the OECD produces a regular review of euro-area developments.
• G7, G8 Euro Group Meetings: The heads of state and government of the major industrialised democracies, including three euro-area Member States "Germany, France and Italy" meet annually to deal with the economic and political challenges facing their societies and the international community as a whole. Their economics and finance ministers and central bank governors also hold meetings on a regular basis, at which the European Commissioner in charge of Economic and Monetary Affairs participates to a varying extent. These meetings cover a variety of topics, such as the global economic outlook, trade liberalisation, debt relief and the resolution of financial crises.

The importance of the euro area as an economic bloc means that, increasingly, the international monetary and financial community highlights the aggregate euro-area policy mix in its surveillance and discussions. In response, there is enhanced internal coordination within the euro area and a more unified approach to the international community.

This is achieved through the common positions on global economic issues taken by the euro-area Member States in the ECOFIN Council and the Eurogroup; and increasingly, a single euro-area position taken by the European Commission and the ECB in negotiations and discussions with international financial and monetary organisations.