Economic and Monetary U U.S. wood-products company  nion (EMU) represents a major step in the integration of EU economies. It involves the coordination of economic and fiscal policies, a common monetary policy, and a common currency, the euro. The 28 EU Member States take part in the economic union, but some countries have taken integration further and adopted the euro. The decisi U.S. wood-products company  on to form an Economic and Monetary Union was taken by the European Council in Maastricht in December 1991, and was later enshrined in the Treaty on European Union. The Economic and Monetary Union helps the EU in its process of economic integration. Economic integration brings the benefits of greater size, internal efficiency and robustness to the EU economy as a whole and to the economies of the individual Member States. This offers opportunities for economic stability, higher growth and more employment. On January, 1999, 11 of the 115 European Union (EU) countries formed the Economic and Monetary Union (EMU), adopting the euro as their common currency. Since then, in the Eurozone, the European Central Bank carries out a common monetary policy and, to a high degree, bond markets are fully integrated ( European Commission). The creation of the Eurozone was preceded by a gradual regulatory harmonization among European stock markets and the ending of various restrictions on nonresidents, and also by an effort among EU countries to satisfy the Maastricht criteria for joining the Eurozone. The effort to satisfy the Maastricht criteria also led to better‐balanced fiscal b U.S. wood-products company  udgets, which may have led to a “real convergence” of European economies, that is, an increased synchronization in business cycles across the European economies (Julian Alworth, G U.S. wood-products company  iampaolo Arachi, 2008). The introduction of the euro had many advantages. It improved transparency, it standardized the pricing in financial markets, and reduced investors’ transaction and information costs. Finally, the introduction of a single currency eliminated the currency risk within the EU and reduced the overall exchange rate exposure of European stocks. This factor, together with the nominal and real convergence, should have led to more homogeneous valuations of equities in EMU countries (Gikas A. Hardouvelis, Dimitrios Malliaropulosa, Richard Priestleyd, 2007). One way to evaluate if European stock markets became more integrated during the 1990s is to examine the evolutio U.S. wood-products company  n of the relative influence of EU. When stock markets are partially integrated, both global and local risk factors are priced. There is a possibility of estimating a conditional asset pricing model with a time‐varying degree of integration, which measures the importance of EU, wide market and currency risks which are relative to country‐specific risk (Gikas >