A macroeconomic assessment of the European Monetary Union. EUMA Paper Vol. 7, No. 5, April 2010

Since the inception of Euro in 1999, a single currency and the Economic and Monetary Union (EMU) have past more than ten years. By and large, stepping into EMU represents one of the key aspects of EU’s successful integration. For most of its short life, the European Union has been driven mainly by the goal of economic integration. From a limited experiment in economic cooperation during the early 1950s, boarded in the 1960s to become a custom union, wrestled during the 1970s with attempts to build common economic policies and exchange rate stability, focused on completing the single market during the late 1980s, to the Economic and Monetary union and a single currency at the present1, the European Union has followed a tortuous path. The paper starts with the effectiveness of EU’s monetary policy after the birth of Euro to explore the complex relationship between monetary policy and economic operation within the European Union

Experience with historical monetary unions

Monetary unions of the past had a better chance of success if economic policies of the participating states were in harmony. Example: The Scandinavian Monetary Union in contrast to the Latin Monetary Union. 0 Since harmony of economic policies could not be maintained under political stress (in the First World War), even the Scandinavian Union failed. .1 0 The only cases where monetary unions have survived up toQiow are those of general political, economic, and monetary unification: Switzerland, Italy and Germany. In monetary matters, the centralizing of decisions has been a minimum requirement for the success of a union. 0 No historical monetary union has brought about political unification. It has always been the other way round. --

"Monetary union and economic growth"

This paper discusses possible links between monetary arrangements in particular monetary union and economic growth. It is stressed that growth depends ultimately on how the real economy works: there is no monetary magic that can conjure up growth. But monetary policy can contribute to conditions for sustainable growth by securing and maintaining price stability; monetary union might extend this. It might also deepen the single market. The elimination of nominal exchange rate movement among members of the union removes some sources of shock but also some ways of adjusting to shocks. This underlines the importance of other adjustment mechanism.especially supply-side flexibility, which is crucial for growth in any event

Regional Currency Arrangements: Insights from Europe

This paper focuses on the requirements and features of a successful monetary union on the basis of the optimum currency area theory, the “logical roadmap” for integration as proposed by Balassa as well as the economic and institutional framework of the European Economic and Monetary Union (EMU). The analysis suggests that monetary union is contingent upon high economic integration and strong political commitment. However, political union is not an ex-ante requirement. Outside factors such as systemic shocks and globalization seem to speed up the pooling of sovereignty in the economic domain. A firm commitment to stability-oriented monetary and fiscal policies is a precondition for gaining credibility and trust within and outside a monetary union. Last, but not least, convergence criteria, fiscal rules and strong institutions are necessary to help ensure and monitor the participants’ compliance. However, the European experience is not a blueprint for regional integration that can be directly and entirely applied to other regions.Economic and Monetary Integration; International Monetary Arrangements and Institutions; Monetary Policy and Central Banking; Macroeconomic Policy Formation

"From Common Market to Emu: A Historical Perspective of European Economic and Monetary Integration"

This paper traces the history and the institutional background of European integration to the establishment of the economic and monetary union in the European Union (EU). After the establishment of the European Economic Community (EEC) in the late 1950s, attempts at monetary integration, and ultimately monetary union, tended to assume importance only as a result of financial crisis and then returned to being a vague objective as soon as the crisis recedes. In recent years, however, monetary integration has assumed greater urgency. Economic union, on the other hand, has followed a smoother transition. Economic integration was used after the Second World War to realize political goals, chiefly to anchor West Germany within the western European alliance. Since that time the economies of member states have slowly integrated. The economic environment of the 1950s is a far cry from the integrated community of today. In the 1950s European currencies were not convertible and domestic trade was highly protected. Intra-European trade was based on bilateral clearing arrangements institutionalized by the European Payments Union. Today EU currencies are fully convertible; capital controls, intra-EU tariffs, and quotas have been eliminated; and the single market has been completed. Monetary union has gone through a number of stages. The Werner Plan of the early 1970s, which set the goal of economic and monetary union by the end of the decade, was only partially implemented. Its failure can be put down to unfavorable international economic conditions and poor institutional structures. In the early 1980s a new monetary initiative, the European Monetary System (EMS), was launched. It struggled through its initial phase until it was replaced by the current euro arrangements. These successive stages ultimately culminated in the Maastricht Treaty, which laid out a precise path and timetable for economic and monetary union.

Why is Europe forming a monetary union?

On January 1, 1999, 11 European countries will officially become a monetary union with one currency, the euro. Forming a monetary union brings benefits, such as increased trade between countries. But it carries costs as well. To join the union, each country must cede its right to set individual monetary and exchange-rate policies. Yet each country’s economic situation may differ from that of its fellow union members. How will these countries--and the union--fare when economic shocks hit, especially shocks that affect one country or region more than another? In this article, Gwen Eudey weighs the benefits and costs of European monetary union and discusses some of the issues involved.European currency unit ; European Monetary System (Organization)

"Political Aspects of European Monetary Integration After WW II"

It is nearly impossible to fully understand the developments and problems of European economic and monetary integration without examining its historical and political background. European monetary integration has at times been propelled, at times been hindered by political motives and developments. Political motivations were already of great importance for the first stage of European economic and monetary integration in the framework of the OEEC and the European Payments Union in the forties and fifties. Even more for the creation of the European Communities (ECSC, EURATOM, EEC) in the fifties. However, considerations of national sovereignty and diverse if not conflicting concepts of economic and monetary policy priorities resulted in the virtual exclusion of economic and monetary policies from any serious attempts of coordination and harmonization. The completion of the EEC customs union and the monetary crises in the late sixties led to a major effort in economic and monetary policy integration culminating in the Werner Plan of 1970. The only result of these efforts was the "snake" which, while in the end shrinking to not much more than a DM zone, provided some framework for monetary cooperation. and The economic difficulties of the seventies on a European and global scale but also the desire to boost the political momentum behind European integration led to the EMS. Political considerations played an important role not only in reviving the process toward Economic and Monetary Union which led to the Delors Report but also in the specific design of the provisions of the Maastricht Treaty and in the premature notion of the EMS as a de facto monetary union. Contrary to many expectations, the EMS crises in 1992 and 1993 did not lead to an abandonment of the objectives of the Maastricht Treaty but resulted in efforts - for political as well as economic reasons - to salvage the EMS and to continue with efforts aimed at economic convergence for the core of the EMS countries. Strong adherence to national sovereignty, insufficient economic convergence, and difficulties in agreeing on meaningful elements of political union undermined until now attempts to create EMU. The substitution of national currencies - powerful symbols of national sovereignty and achievements - by an untested European currency requires progress in the mentioned areas

The role of EU institutions in implementing its monetary policy

The main goal of the current article is to illustrate in detail the powers of the EU institutions to implement its monetary policy. The methods used to explore the topic and to draw the conclusions and interpret the findings are based on deduction and induction. On the grounds of the information presented in the article the following conclusions have been drawn: the relations between the EU institutions responsible for implementing its monetary policy (the European Central Bank, the European Parliament, the Council, the European Commission and others) are entirely based on fundamental principles laid down for all its institutions; the commitments of the institutions implementing the EU monetary policy are strictly stipulated in its primary legislation and are mostly related to the establishment of the EU Economic and Monetary Union, the framing, planning and implementing of the common monetary policy, the management of the Monetary Union. In the conditions of world financial and economic crisis the EU has attempted to respond adequately to its monetary policy problems, commensurate with the scope and matching the specific nature of this crisis.European Union, Economic and Monetary Union, monetary policy, EU institutions, world economic crisis

Monetary union and economic growth

This paper discusses possible links between monetary arrangements in particular monetary union and economic growth. It is stressed that growth depends ultimately on how the real economy works: there is no monetary magic that can conjure up growth. But monetary policy can contribute to conditions for sustainable growth by securing and maintaining price stability; monetary union might extend this. It might also deepen the single market. The elimination of nominal exchange rate movement among members of the union removes some sources of shock but also some ways of adjusting to shocks. This underlines the importance of other adjustment mechanism especially supply-side flexibility, which is crucial for growth in any event.

The Optimum Currency Area. Is the Euro Zone an Optimum Currency Area?

Although analyzed in terms of criteria for defining an optimum currency area, we could appreciate that EU fulfils certain criteria established within the theory of the optimum currency area. But in comparison with USA or Canada, the EU has less premises to effectively become such an area. The Economic and Monetary Union considered, from a certain point of view, the most ambitious and risky project of the European construction, is the result of a fundamental political decision within a powerful economic component. Despite the statute of sub-optimum currency area, there are still a series of arguments, both supportive and critical, for the settlement of an Economic and Monetary Union within the European space.Optimum Currency Area, Monetary Integration, Currency, Economic and Monetary Union