Have you lost the plot?; A three-part series that explains the issues behind the news

What is happening to the EMU?
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The Independent Online
The plot: politicians have been attempting to drive Europe's currencies into the same sheep pen for 25 years. The first bid at convergence dates from 1971; it was eventually abandoned. The second go, in March 1979, was the European Monetary System, which ushered in Europe's own unit of currency, the ecu, and the Exchange Rate Mechanism. This attempt to yoke the Community's currencies together in defiance of the markets was shaken by the expulsion of Italy and the UK from the ERM in 1992 and nearly fell apart the next year; it was put under further strain last year as the markets bet against the French policy of linking the franc to the German mark.

None the less, at the European Union summit in Madrid in December, the member states confirmed their intention to permanently lock currencies on 1 January 1999, and to bring in the new pan-European notes and coins - to be called, with a degree of bathos, the "Euro" - at the start of 2002.

The characters: scepticism about monetary union rends both main political parties, though Labour has been more successful in showing a united front. Conservative divisions on the question - in the open ever since Mrs Thatcher's famous No! No! No! - have amounted to anact of ritual disembowelment.

Prospects: emu is dependent on countries meeting the agreed "convergence criteria": inflation, long term interest rates and financial objectives for the amount of borrowing and the amount of debt. But the prospects were damaged earlier this month when it emerged that even the mighty German economy had failed to cut its budget deficit sufficiently - the only country on target was Luxembourg. The question now is whether any government will be able to impose the sort of economic pain necessary to bring about convergence, with most states on the brink of recession. Britain alone with Denmark, meanwhile, retains the right to decide later on whether or not it will take part.

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