17 - Currency Stabilization through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?

Summary

Summary Introduction

The introduction of the EURO in 1999 will see the completion of a process initiated by Roy Jenkins' decision to breathe new life into the Treaty of Rome by reviving the project for a common currency. The path that has led from the Exchange Rate Mechanism, to the Single Market Act, to the revision of the original Treaty in Maastricht, has meant a transformation of the original objectives from a free trade zone to a zone of price stability. This has meant that other economic policy objectives have been subordinated to price stability and many countries have had to sacrifice growth and employment to attain the prerequisites for what the Germans call a “culture of stability”. While these other policy objectives can be ignored for a short period, once the Euro is introduced they will have to be faced. The original project for price stability overlooked these problems because it was presumed that price stability was a necessary and sufficient condition for the resumption of the kind of growth and employment experience that Europe had experienced before the Vietnam war and the oil crisis. However, this has not been the case.

The process of globalization of trade and production has created additional difficulties for the European unification project. In particular, it has raised the question of competition from developing countries using cheap labor.