Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-30T17:09:20.392Z Has data issue: false hasContentIssue false

Towards a Strategic View on EMU: A Critical Survey*

Published online by Cambridge University Press:  28 November 2008

Bernhard Winkler
Affiliation:
Economics, European University Institute, Florence, Department of Economics, European University Institute, Badia Fiesolana, I-50016 San Domenico (Firenze), Italy, E-mail:[email protected]

Abstract

This paper contributes to the ongoing debate over European Monetary Union (EMU), reviewing the economics literature on the merits of a single currency (‘optimum currency area’) and on the requirements for astable currency (‘credibility’). To understand Europe's drive for EMU and the transition strategy adopted at Maastricht both issues must be analysed together. The controversial convergence criteria in the Maastricht Treaty, in particular, primarily address valid concerns about the (price) stability performance of a future single currency by determining the timing and membership of EMU. In general, we propose to interpret the Maastricht design as a mechanism that must reconcile conflicting interests, solve credibility problems over time and extract information about candidate countries’ ‘stability culture’ in the run-up to monetary union.

Type
Articles
Copyright
Copyright © Cambridge University Press 1996

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Alesina, A. and Grilli, V. (1991). The European Central Bank: Reshaping Monetary Politics in Europe. In Canzoneri, M., Grilli, V. and Masson, P. (eds.). Establishing a Central Bank Issues in Europe and Lessons from the U.S. Cambridge: CUP.Google Scholar
Alesina, A. and Grilli, V. (1993). On the Feasibility of a One- or Multi-speed European Monetary Union. Economics and Politics 5, 145165.CrossRefGoogle Scholar
Alesina, A. and Perotti, R. (1994). The Political Economy of Budget Deficits. NBER Working Paper 4637.CrossRefGoogle Scholar
Alesina, A. and Summers, L. (1993). Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money, Credit, and Banking 25, 151162.CrossRefGoogle Scholar
Arrowsmith, J. (1995). Economic and Monetary Union in a Multi-Tier Europe. National Institute Economic Review 152, 7696.CrossRefGoogle Scholar
Artis, M. J. (1994). Stage Two: Feasible Transitions to EMU. CEPR Discussion Paper 928.Google Scholar
Blackus, D. and Driffill, J. (1985). Rational Expectations and Policy Credibility Following a Change in Regime. Review of Economic Studies 52, 211222.Google Scholar
Barro, R.J. and Gordon, D.B. (1983a). A Positive Theory of Monetary Policy in a Natural Rate Model. Journal of Political Economy 91, 585610.CrossRefGoogle Scholar
Barro, R.J. and Gordon, D.B. (1983b). Rules, Discretion and Reputation in a Model of Monetary Policy. Journal of Monetary Economics 14, 101122.CrossRefGoogle Scholar
Bayoumi, T. A. (1994). A Formal Model of Optimum Currency Areas. CEPR Discussion Paper 968.Google Scholar
Bayoumi, T.A. and Eichengreen, B. (1993). Shocking Aspects of European Monetary Unification. In Torres, F. and Giavazzi, F. (eds.) Adjustment and Growth in the European Monetary Union. Cambridge: CUP.Google Scholar
Bayoumi, T.A. and Masson, P.R. (1994). Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe. CEPR Discussion Paper 1057.Google Scholar
Bayoumi, T.A. and Prasad, E. (1995). Currency Unions, Economic Fluctuations and Adjustment: Some Empirical Evidence. CEPR Discussion Paper 1172.Google Scholar
Beetsma, R.M. and van der Ploeg, F. (1992). Does Inequality Cause Inflation? The Political Economy of Inflation, Taxation and Government Debt. CEPR Discussion Paper 741.Google Scholar
Begg, D. and Wyplosz, C. (1993). The European Monetary System: Recent Intellectual History. In The Monetary Future of Europe. London, CEPR; 178.Google Scholar
Begg, D. et al. (1991). European Monetary Union—The Macro Issues. In CEPR Annual Report 1991: Monitoring European Integration. The Making of Monetary Union, 166.Google Scholar
Bofinger, P. (19940. Is Europe an Optimum Currency Area? CEPR Discussion Paper 915.Google Scholar
Brittan, S. (1995). Something in it for Germany. Financial Times. London, April 24.Google Scholar
Buiter, W.H. (1992). Should We Worry About the Fiscal Numerology of Maastricht? CEPR Discussion Paper 668.Google Scholar
Buiter, W.H. (1995). Macroeconomic Policy during a Transition to Monetary Union. CEPR Discussion Paper, 1222.Google Scholar
Buiter, W.H. and Kletzer, K.M. (1991). Reflections on the Fiscal Implications of a Common Currency. In Giovannini, A. and Mayer, C. (eds.). European Financial Integration. Cambridge: CUP.Google Scholar
Buiter, W.H., Corsetti, G. and Roubini, N. (1993). Excessive Deficits: Sense and Nonsense in the Treaty of Maastricht. Economic Policy 16, April, 57100.CrossRefGoogle Scholar
Canzoneri, M.B. and Rogers, A. (1990). Is the European Community an Optimal Currency Area? American Economic Review 80, 419433.Google Scholar
Cohen, B. (1993). Beyond EMU: The Problem of Sustainability. Economics and Politics 5, 187202.CrossRefGoogle Scholar
Collins, S. and Giavazzi, F. (1992). Attitudes towards Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS. NBER Working Paper 4057.CrossRefGoogle Scholar
Cukierman, A. (1992). Central Bank Strategy, Credibility, and Independence: Theory and Evidence. MIT Press: Cambridge (Mass.).Google Scholar
Cukierman, A. and Liviatan, N. (1991). Optimal Accommodation by a Strong Policymaker under Incomplete Information. Journal of Monetary Economics 18, 19127.Google Scholar
Currie, D. (1992). European Monetary Union: Institutional Structure and Economic Performance. Economic Journal 102, 248264.CrossRefGoogle Scholar
Currie, D., Levine, P. and Pearlman, J. (1992). ‘European Monetary Union or Hard EMS’? European Economic Review 36, 11851204.CrossRefGoogle Scholar
De Grauwe, P. (1992). Inflation Convergence During the Transition to EMU. CEPR Discussion Paper 658.Google Scholar
De Grauwe, P. (1993). The Political Economy of Monetary Union in Europe. The World Economy 16, 653661.CrossRefGoogle Scholar
De Grauwe, P. (1994). Towards European Monetary Union without the EMS. Economic Policy 18, 149174.Google Scholar
De Grauwe, P. (1995). The Economics of Convergence Towards Monetary Union in Europe. CEPR Discussion Paper 1213.Google Scholar
Dowd, K. and Greenaway, D. (1993). Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas. Economic Journal 102, 11801189.CrossRefGoogle Scholar
Eichengreen, B. (1991). Is Europe an Optimum Currency Area?. NBER Working Paper 3579.CrossRefGoogle Scholar
Eichengreen, B. (1993). European Monetary Unification. Journal of Economic Literature 31, 13211357.Google Scholar
Eichengreen, B. and Ghironi, F. (1995). European Monetary Unification: the Challenges Ahead. CEPR Working Paper 1217.Google Scholar
Eichengreen, B. and Wyplosz, C. (1993). The Unstable EMS. Brookings Papers on Economic Activity 1, 51143.CrossRefGoogle Scholar
Emerson, M. et al. (1992). One Market, One Money. Oxford: OUP.Google Scholar
Financial Times (1995). Germany Proposes Fines to Regulate EMU States, November 1112.Google Scholar
Fratianni, M., von Hagen, J. and Waller, C. (1993). Central Banking as a Principal-Agent Problem. CEPR Discussion Paper 752.Google Scholar
Garrett, G. (1993). The Politics of Maastricht. Economics and Politics 5, 105123.CrossRefGoogle Scholar
Giavazzi, F. and Pagano, M. (1988). The Advantage of Tying One's Hands. EMS Discipline and Central Bank Credibility. European Economic Review 32, 10551075.CrossRefGoogle Scholar
Giovannetti, G. and Marimon, R. (1995). A Monetary Union for a Heterogeneous Europe. European University Institute Working Paper RSC 95/17.Google Scholar
Giovannini, A. and Spaventa, L. (1991). Fiscal Rules and the European Monetary Union: A No-Entry Clause. CEPR Discussion Paper 516.Google Scholar
Grilli, V., Masciandro, D. and Tabellini, G. (1991). Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy 14, October, 341392.CrossRefGoogle Scholar
Gros, D. and Thygesen, N. (1992). European Monetary Integration. London: Longman.Google Scholar
von Hagen, J. and Hammond, G.W. (1995). Regional Insurance Against Asymmetric Shocks. An Empirical Study for the European Community. CEPR Discussion Paper 1170.Google Scholar
von Hagen, J. and Harden, I.J. (1994). National Budget Processes and Fiscal Performance. European Economy Reports and Studies, 3, 311408.Google Scholar
von Hagen, J. and Süppel, R. (1994). Central Bank Constitutions for Monetary Unions. CEPR Discussion Paper 919.CrossRefGoogle Scholar
Haller, G. (1994). Long Live the EMS. In Deutsche Bundesbank: Auszüge aus Presseartikeln Nr. 6, 1920.Google Scholar
Hesse, H. (1995). Auf dem Weg zu einer Europäischen Währungsuion—Wo Stehen Wir? In Deutsche Bundesbank Auszüge aus Presseartikeln Nr. 29, 612.Google Scholar
Honkapohja, S. and Pikkarainen, P. (1992). Country Characteristics and the Choice of the Exchange Rate Regime. CEPR Discussion Paper 744.Google Scholar
Issing, O. (1994). The Road Towards European Monetary Union—Convergence in Stability. In Deutsche Bundesbank: Auszüge aus Presseartikeln Nr. 5, 68.Google Scholar
Issing, O. (1996). Bedingungen für Stabiles Geld in Deutschland und Europa. In Deutsche Bundesbank Auszüge aus Presseartikeln Nr. 6, 1622.Google Scholar
Jochimsen, R. (1995). Perspektiven der Europäischen Wirtschafts- und Währungsunion. In Deutsche Bundesbank: Auszüge aus Presseartikeln Nr. 26, 39.Google Scholar
Krugman, P. R. (1992). Policy Problems of a Monetary Union. In Currencies and Crises. Cambridge, MA: MIT Press.Google Scholar
Mélitz, J. (1994). French Monetary Policy and Recent Speculative Attacks on the Franc. In: Cobham, D. (ed.). European Monetary Upheavals. Manchester: Manchester University Press.Google Scholar
Mélitz, J. (1995). The Current Impasse in Research on Optimum Currency Areas. European Economic Review 39, Papers and Proceedings, 492500.CrossRefGoogle Scholar
Morales, A.J. and Padilla, A.J. (1995). Designing Institutions for International Monetary Policy Coordination. CEPR Discussion Paper 1180.Google Scholar
Münchau, W. (1995). German Savers Going Swiss. Financial Times, September 26.Google Scholar
Persson, T. and Tabellini, G. (1993). Designing Institutions for Monetary Stability. Carnegie-Rochester Conference Series on Public Policy 39, 5384.CrossRefGoogle Scholar
Persson, T. and Tabellini, G. (1990). Macroeconomic Policy, Credibility and Politics. Chur: Harwood Academic Publishers.Google Scholar
Rogoff, K. (1985). The Optimal Degree of Commitment to an Intermediate Target. Quarterly Journal of Economics 100, 11691189.CrossRefGoogle Scholar
Sala-i-Martin, X. and Sachs, J. (1992). Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States. CEPR Discussion Paper 632.CrossRefGoogle Scholar
Sandholtz, W. (1993). Choosing Union: Monetary Politics and Maastricht. International Organization 47, 139.CrossRefGoogle Scholar
Sargent, T.J. and Wallace, N. (1981). Some Unpleasant Monetarist Arithmetic. Quarterly Review, Federal Reserve Bank of Minneapolis (Fall). 117.Google Scholar
Tavlas, G.S. (1993). The ‘New’ Theory of Optimum Currency Areas. The World Economy 16, 663685.CrossRefGoogle Scholar
Theurl, T. (1992). Eine Gemeinsame Währung für Europa. Innsbruck: Österreichischer Studien Verlag.Google Scholar
Vickers, J. (1986). Signalling in a Model of Monetary Policy in a Reputational Equilibrium. Oxford Economic Papers, 38, 443455.CrossRefGoogle Scholar
Walsh, C. (1995) Optimal Contracts for Central Bankers, American Economic Reviews, 85, 150167.Google Scholar
Winkler, B. (1995a). Reputation for EMU—An Economic Defence of the Maastricht Criteria. European University Institute Working Paper ECO 95/18.Google Scholar
Winkler, B. (1995b). Towards a Strategic View on EMU—A Critical Survey. European University Institute Working Paper RSC 95/18.Google Scholar
Winkler, B. (1996). Of Sticks and Carrots. Incentives and the Maastricht Road to EMU. Mimeo, European University Institute.Google Scholar