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After World War Ⅱ，most western economies adopted Bretton Woods System of fixed exchange rates，which brought many internal balance and external balance problems.In order to achieve a stability and an environment for higher growth and employment，the European Monetary Cooperation Fund was set up in 1973.It then was taken over by the European Monetary Institute，which was dissolved on 1st Jun.，1998 with the creation of the European Central Bank and the European System of Central Banks.
The move toward a common market revealed a need for monetary coordination.Euro area then has gone through 4 phases to come into being：
1）1957 1970： from the Treaty of Rome to the Werner Report
The international currency stability that reigned in the immediate post-war period did not last.International currency market turmoils between 1968 and 1969 threatened the common price system of the agricultural policy，a main pillar of what was then the European Economic Community.In response to this troubling background，Europe's leaders set up a high-level group led by Pierre Werner，the Luxembourg Prime Minister at the time，to report on how European Monetary Union（EMU）could be achieved by 1980.
2）1970 1979： from the Werner Report to the European Monetary System
The Werner group set out a three-stage process to achieve EMU within ten years，including the possibility of a single currency.The member states agreed in principle in 1971 and began the first stage—narrowing currency fluctuations.However，a wave of currency instability on international markets squashed hopes of tying the community's currencies closer together.Subsequent attempts at achieving stable exchange rates were hit by oil crises and other shocks until，in 1979，the European Monetary System was launched.
3）1979 1991： from the Start of European Monetary System to Maastricht
The European Monetary System was built on exchange rates defined with reference to a newly created European Currency Unit，a weighted average of European Monetary System currencies.An exchange rate mechanism was used to keep participating currencies within a narrow band.The European Monetary System represented a new and unprecedented coordination of monetary policies between the member states，and operated successfully for over a decade.
This success provided the impetus for further discussions between the member states on achieving economic and monetary union.At the request of the European leaders，the European Commission President，Jacques Delors，and the central bank governors of the EU member states produced the “Delors Report”，which is a basis for reflection and debate about what choices should be made in formulating policies，on how EMU could be achieved.
4）1991 2002： from Maastricht to Euro and the Euro Area
The Delors Report proposed a three-stage preparatory period for economic and monetary union and the Euro area，spanning the period 1990 to 1999.Preparations involved：
·Completing the internal market（1990 1994），namely through the introduction of the free movement of capital；
·Preparing for the European Central Bank and the European System of Central Banks，and achieving economic convergence（1994 1999）；
·Fixing exchange rates and launching Euro（1999 onwards）；
·European leaders accepted the recommendations in the Delors Report.The new Treaty on European Union，which contained the provisions needed to implement EMU，was agreed at the European Council held at Maastricht，the Netherlands，in Dec.1991.This council also agreed the“Maastricht convergence criteria” that each member state would have to meet to participate in the Euro area.
After a decade of preparations，Euro was launched on 1st Jan.，1999.At the same time，the Euro area came into operation，and monetary policy passed to the European Central Bank，established a few months previously—1st Jun.，1998—in preparation for the third stage of EMU.After three years of working with the Euro as“book money” alongside national currencies，euro coins and banknotes were launched on 1st Jan.，2002 and the biggest cash changeover in history took place in 12 EU countries（Austria，Belgium，Finland，France，Germany，Greece，Ireland，Italy，Luxembourg，the Netherlands，Portugal and Spain）.More countries have joined Euro zone as shown in Figure 1-9.
The introduction of Euro banknotes and coins in 2002 was the largest-ever currency changeover.In preparation for it，around 14 billion notes and 52 billion coins were produced，of which some 7.8 billion notes and 40 billion coins were distributed at the beginning of Jan.2002 to 218，000 banks and post offices，2.8 million sales outlets，and 302 million individuals in the 12 participating countries.In parallel，a large proportion of the 9 billion national notes and 107 billion national coins in circulation were withdrawn.
Figure 1-9 Exchange Rate Regimes of EU Member States
Europe's single currency has promoted European political and economic integration，yet it still needs to be improved.
Some EU members，for instance，have violated the Maastricht Treaty，and they fell into serious debt crisis.The Maastricht Treaty specifies the macroeconomic convergence criteria that EU member countries must satisfy，among which 3 criteria are essential：long-term interest rate，government deficit and government debt.
① Low interest rate：To maintain price stability within the Euro zone，the nominal long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.
This requirement increased investment capital，most of which was from Germany and France to the southern members.But with the inflow of capital，wages and prices increased in southern nations as well，worsened their current account.Southern members cannot use monetary policy，raise interest rates or cut money supply，so their current account and inflation are getting worse hence less tax revenues.
② Low government debt：The ratio of gross government debt to GDP must not exceed 60％ at the end of the preceding fiscal year.Even if the target cannot be achieved due to the specific conditions，the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.
This requirement is rather difficult to meet.In 2014 only Estonia，Latvia，Lithuania，Slovakia，Luxembourg，and Finland met this target.Germany and France are spending above the limit.Figure 1-9，shows the reason：Estonia，Latvia，Lithuania，Slovakia are 4 countries that have newly obtained the membership of Euro.
③ Low government deficit：Austerity measures can improve public finance management and lower trade barriers.
Since adopted austerity measures，southern members such as Greece，have increased unemployment，cut back consumer spending，and reduced capital needed for lending.
The above problems put Greece in a default situation in 2009.In the following 3 years this crisis escalated into the potential for sovereign debt defaults，from Greece to Portugal，Italy，Ireland，and Spain.When the European Central Bank and International Monetary Fund struggled to bail out troubled members，the world saw the Euro zone debt crisis.
Learned from the experience of integrating east Germany，former German Chancellor Merkel developed a plan to rescue Euro zone.In 2011，EU leaders agreed to a German-backed fiscal union that allows Brussels to dictate national budgets，and 2012 began the process of creating a Euro zone-wide banking union.More specifically，the solutions are as follows：
① Launch quick-start programs to facilitate business start-ups；
② Relax protections against wrongful dismissal；
③ Introduce“mini-jobs” with lower taxes；
④ Combine apprenticeship with vocational education targeted toward youth unemployment；
⑤ Create special funds and tax benefits to privatize state-owned businesses；
⑥ Establish special economic zones，like those in China；
⑦ Invest in renewable energy.
With this plan and an intergovernmental treaty，the EU leaders agreed to create a fiscal unity parallel to the monetary union that already exists.
On May 9th，2010，the 27 EU member states agreed to create the European Financial Stability Facility.This institution was set up to preserve financial stability in Europe by providing financial assistance to Euro zone states in difficulty.
On 5th Jan.2011，the European Union created the European Financial Stabilization Mechanism（EFSM），an emergency funding programme reliant upon funds raised on the financial markets and guaranteed by the European Commission using the budget of the European Union as collateral.
A total sum of 720 billion Euro' bailout restored faith in Euro，followed by the intervention from other countries as well as interest cut by European Central Bank.By 2014，Ireland，Spain and Portugal had completed their bailout programs.
More than 10 years has passed yet deep structural problems persist，including high unemployment，weak banking systems，huge debt，and rigid labor markets.Further reforms are needed to improve governance and coordinate economic policy.