The European Economic and Monetary Union (EMU) consists of three stages coordinating economic policy and culminating in the adoption of the Euro, the EU's single currency. All member states of the European Union participate in the EMU. Twelve member states of the European Union have entered the third stage and have adopted the Euro as their currency (Eurozone). The United Kingdom, Denmark and Sweden have opted out from the transition to the third stage of the EMU.
Under the Copenhagen criteria, it is a condition of entry for states acceding to the EU that they are able to fulfil the requirements for monetary union within a given period of time. The 10 new member states that became part of the European Union in 2004 all intend to join the third stage of the EMU in the next ten years, though the precise timing depends on various economic factors. Similarly, those countries who are currently negotiating for entry will also take the Euro as their currency in the years following their accession (see Enlargement of the European Union). Prior to adopting the Euro, a member state has to have its currency in the European Exchange Rate Mechanism (ERM II) for two years.
Stage 1 began on July 1, 1990 with the introduction of the free movement of capital between EU member states. The members agreed on a complete liberalization of the capital market as well as on a close cooperation concerning their economic, financial and monetary policies.
Stage 2 followed on January 1, 1994. The European Monetary Institute was established as the forerunner of the European Central Bank, with the task of strengthening the monetary cooperation between the member states and their national banks.
Stage 3 began on January 1, 1999, when the Euro was introduced as bank money. A three-year transition period began before the introduction of actual Euro banknotes and coins. On January 1, 2004, the national currencies ceased to exist and were replaced by the Euro.