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An economic and monetary union involves countries sharing a single currency and cooperating on economic policies and trade barriers. The European Union is the best-known example, but there are other configurations that exist. It is possible to have an economic union without sharing a currency, and vice versa. The European Union also has the ability to issue directives on policy issues, while countries that use the euro have a European Central Bank that makes monetary policy decisions.
An economic and monetary union is where several countries agree to share a single currency. This entails agreeing to a certain degree of cooperation regarding economic policies, as well as agreements on trade barriers. The best-known example is that of a group of countries in the European Union. Countries involved in an economic and monetary union can also cooperate in the legislative process, but this is not inevitable.
There are two separate systems at work in an economic and monetary union, both of which can exist individually. For example, a group of countries can share a common currency without having a trade agreement. A number of such configurations exist today, informal and formal, most involving a large country and several smaller allied countries, such as those that used to be part of an empire but now have a degree of independence.
It is also possible to have an economic union, in the form of a trade agreement, without sharing a currency. The most prominent currently existing are agreements between European countries that do not share a currency or are not members of the European Union. These settings can involve a common market, which limits barriers such as trade tariffs, or a single market, in which the aim is to have as few trade barriers as possible, which generally means that companies and workers have the right to operate in either country. .
To be an economic and monetary union, however, the single currency and economic union must be present. The only major example of this involves 16 countries, as of 2010, that are members of the European Union and have adopted the euro as their national currency. The European Union is also an economic union, but not all members share the currency. The UK and Sweden are the most notable “not outs”, while some newer EU members have yet to meet the financial criteria to adopt the euro but are expected to do so.
There are other aspects of partnership for the European Union that are not an inevitable part of an economic and monetary union. The EU has the ability to issue directives on policy issues, usually related in some way to trade, which member states must adopt into national legislation. Meanwhile, the countries that use the euro have created a European Central Bank that makes monetary policy decisions that affect all of those countries. While such a bank is almost a practical inevitability with a single currency, it is not an inherent requirement of an economic and monetary union.
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