Concepedia

EMU: Why and How It Might Happen

The Journal of Economic Perspectives · 1997 · 222 citations · 18 references

TL;DR

The design of the European monetary union, including central bank independence and fiscal restraints, reflects Germany's inflation fears as it gives up its currency. The paper reviews the history, economic rationale, and main components of establishing a European monetary union by 1999, and presents the timetable of the final countdown. The authors review historical, economic, and institutional aspects of the European monetary union and outline the timetable for its final implementation. The adoption of a single currency is the best option after capital movement liberalization, but the fiscal restraints are excessive and create a contractionary bias.

Abstract

This paper reviews the history, economic rationale, and main components of the project of establishing a monetary union in Europe by 1999. The adoption of a single currency is shown to be the best available option following the liberalization of capital movements. Most of the institution's design (central bank independence and objective, fiscal restraints) reflect Germany's fears of inflation as it is asked to give up its currency. The fiscal restraints are excessive, however, and a source of contractionary bias. The paper also presents the timetable of the final countdown.