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Economic and political risks of European Monetary Union

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Intereconomics

Abstract

As demonstrated by the last European Union summit meetings, the heads of government and of state of the EU's member states appear firmly intent on starting the planned monetary union on schedule on 1st January 1999. The statements they make, and also any pamphlets and advertisements published by their governments and the European Commission, tend to concentrate one-sidedly on the purported advantages of monetary union. Nevertheless, in most EU countries plans for monetary union are greeted with scepticism or disapproval by a large section of the general public. There are good reasons for this reaction because, as will be explained below, European Monetary Union is in fact associated with serious economic and political risks.

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References

  1. See in particular: Commission of the European Communities: One market, one money, in: European Economy, No. 44, October 1990.

  2. An overview of the relevant empirical research is given by the International Monetary Fund: Exchange Rate Volatility and World Trade: A Study by the Research Department of the International Monetary Fund, Occasional Paper, No. 28, Washington D.C. 1984.

  3. This is the view of, for example, Germany's Minister of Foreign Affairs. Cf. Klaus Kinkel: Europa braucht eine gemeinsame Stabilitätspolitik, in: Handelsblatt, 6th December 1995.

  4. See H. Kohl: Rede des Bundeskanzlers anläßlich der Verleihung der Ehrendoktorwürde durch die Katholische Universität Löwen am 2. Februar 1996, in: Presse- und Informationsamt der Bundesregierung, Bulletin, Nr. 12 vom 8. Februar 1996.

  5. Cf. Protocol on the Statute of the European System of Central Banks and of the European Central Bank, Article 11.

  6. Cf. ibid. Protocol on the Statute of the European System of Central Banks and of the European Central Bank, Article 14.

  7. Both statements are quoted from: Gemeinschaft zum Schutz der deutschen Sparer: Mitteilungen und Kommentare zur Geldwertstabilität, No. 2 (1997), 25th February 1997, p. 4.

  8. Cf. Dublin European Council, 13th and 14th December 1996. Presidency Conclusions.

  9. Cf. T. Bayoumi and B. Eichengreen: Shocking Aspects of European Monetary Integration, in: F. Torres and F. Giavazzi (eds.): Adjustment and Growth in the European Monetary Union, Cambridge 1993, pp. 193–229.

  10. The empirical research carried out by other authors has essentially confirmed the results of the research carried out by Bayoumi and Eichengreen. Cf., e.g., P. De Grauwe and H. Heens: Real Exchange Rate Variability in Monetary Unions, in: Recherches Economiques de Louvain, Vol. 59 (1993), No. 1-2 pp. 105–117; J. von Hagen and M. J. M. Neumann: Real Exchange Rates within and between Currency Areas: How Far Away is EMU?, in: Review of Economics and Statistics, Vol. 76 (1994), No. 2, pp. 236–244; D. Neven and C. Gouyette: Regional Convergence in the European Community, in: Journal of Common Market Studies, Vol. 33 (1995), No. 1, pp. 47–65.

  11. Cf. P. Krugman: Geography and Trade, Leuven, Cambridge, Mass., London 1991, pp. 75 ff.

  12. See also the standard work on the theory of optimum currency areas: R. A. Mundell: A Theory of Optimum Currency Areas, in: American Economic Review, Vol. 51 (1961), pp. 657–665; R. I. McKinnon: Optimum Currency Areas, in: American Economic Review, Vol. 53 (1963), pp. 717–725; P. B. Kenen: The Theory of Optimum Currency Areas: An Eclectic View, in: R.A. Mundell and A. K. Swoboda (eds.): Monetary Problems of the International Economy, Chicago, Ill., London 1969, pp. 41–60.

  13. Cf. B. Eichengreen: Should the Maastricht Treaty Be Saved?, Princeton, N.J. 1992, p. 21.

  14. Cf. Deutscher Gewerkschaftsbund: Zur Europäischen Wirtschafts-und Währungsunion (EWWU), Düsseldorf 1995, p. 7.

  15. Cf. B. Eichengreen: Is Europe an Optimum Currency Area?, in: S. Borner and H. Grubel (eds.): The European Community after 1992, Basingstoke, London 1992, pp. 138–161.

  16. Cf. B. Eichengreen: Labor Markets and European Monetary Unification, in: P. R. Masson and M. P. Taylor (eds.): Policy Issues in the Operation of Currency Unions, Cambridge 1993, pp. 130–162; J. Decressin and A. Fatás: Regional Labor Market Dynamics in Europe, in: European Economic Review, Vol. 39 (1995), pp. 1627–1655.

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  1. Eberhard-Karis-Universität, Tübingen, Germany

    Horst Feldmann

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  1. Horst Feldmann
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Feldmann, H. Economic and political risks of European Monetary Union. Intereconomics 32, 107–115 (1997). https://doi.org/10.1007/BF02928742

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