LEGAL FRAMEWORK OF THE EUROPEAN MONETARY SYSTEM AND THE EUROPEAN MONETARY UNION

The Maastricht Treaty created legal precondition for establishing a monetary union. However, before the monetary union is realized, a certain time has to elapse, during which the competences over monetary policy will stay in national hands. Consequently in this transitional period, the monetary situation will be very unstable, because the three other elements of the quartet have already been fulfilled. According to David Cobham, in a given situation, "the uncoordinated national monetary policies will create balance of payments disequilibria, and threaten the fixity of exchange rates." Therefore, in order to maintain the stable monetary situation during the transitional period, the coordination of national monetary policies has to be strong. This paper will try to show that the Maastricht Treaty, which represents the legal framework for the realization of monetary union, has not offered the appropriate solutions for the transitional period. The institutional framework within which the monetary cooperation was organized prior to the Maastricht Treaty is the European Monetary System (EMS), and the new Treaty has not changed anything in either legal or institutional organization of the EMS, which was created in 1979. The success of the monetary union will, therefore, greatly depend on the functioning of the "old" EMS which, in the changed circumstances, especially due to the liberalization of capital movements, may prove to be unable to maintain monetary stability. The recent currency crisis, which lasted from September 1992 until August 1993, was a first proof of the EMS vulnerability.