The Impact of the Greek Sovereign Debt Crisis on the European Monetary Union

The literature on economic integration dates back to the 1950s when major economists like Viner (1950), Tinbergen (1954) and Balassa (1965) tried to analyse the early attempts made by Western European countries to establish a regional economic integration. According to these authors, five different stages of economic integration can be identified:
· The first stage of economic integration is represented by the Free Trade Area (FTA). The essence of a FTA is that tariffs between the participating countries are abolished, while
each member state establishes its own tariffs against non-members (Balassa, 1961).
· The Customs Union (CU) is the very next step to economic integration. It has the same characteristics of a FTA, but the participating countries set a common external tariff against non-members.
· A higher form of economic integration is achieved in a Common Market (CM), where not only trade restrictions but also restrictions on labour and capital are abolished
· An Economic Union represents the first attempt to a political openness. Economic and social policies are harmonised to ensure effective free movement. The harmonisation extends also to the macroeconomic level, to make sure that trade flows are not distorted
· The Economic and Monetary Union (EMU) is regarded as the final stage of economic integration. It requires the unification of monetary, fiscal and social policies as well as the
introduction of a supranational authority which sets binding decisions for its member states.
On the basis of the above definitions, it is possible to trace out a path which starts with a tariff integration and ultimately leads to a complete economic integration, that is EMU. This is the path the European Union has followed from the very beginning. From the creation of the European Coal and Steel Community – ECSC – in 1951, and the European Economic Community – EEC – in 1957, the aim of its founding members was that of creating a custom union which would then turn into a common market. As explained above, a CM requires the free movement of goods, labour, capital and services. In this endeavour, the Single European Act (1986) set as an objective the achievement of the CM by 31 December 1992 adding elements of political cooperation. When the Treaty of the European Union came into force in 1992, the economic and monetary union was envisaged as the ultimate stage of economic integration. This stage was reached on 1st January 2002, when the common currency, the Euro, started circulating among the EU countries which adopted the European currency.