OP:15. Building a Monetary Union in
Europe: Is it Worthwhile, Where do We Stand, and Where are We Going?
Author(s): J Viņals
Publication Date: September 1994
Abstract: This paper discusses the building of a Monetary Union
in Europe (EMU), and in so doing, addresses three key issues: Is it
economically beneficial? Where does it stand at present? And where is it
going? The first question refers to the costs and benefits of EMU. While
the paper concludes that EMU is likely to be beneficial for the
Community as a whole, the countries which will profit the most are those
whose economies are more diversified, more integrated in commercial and
financial terms and, most importantly, those whose goods and labour
markets are freer from structural rigidities. The second question
addressed concerns the transition to EMU during Stage Two. It is
concluded that only by strengthening policy-coordination among member
countries, and by implementing the necessary changes to safeguard the
cohesion of the ERM in the presence of speculative attacks, will it be
possible to maintain monetary and exchange rate stability in an
environment of liberalized capital flows. The recent creation of the
European Monetary Institute and the automatic introduction by the Treaty
of Maastricht of a number of changes in the economic and financial
framework during the transition may facilitate achieving the above
objectives. The third question refers to the design of the future
European monetary policy. Since the whole balance between the costs and
benefits to be obtained from EMU dependds critically on the
anti-inflationary orientation of the Banks, the paper analyses the role
of central bank independence as well as the complexities involved in
moving to a single European monetary policy. The pros and cons of
different alternative for formulating and executing the European
monetary policy are discussed.
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