Winners and Losers in the European Monetary Union

European integration is not a single and simple event taking place at one moment in time, but a long lasting evolutionary process with many ups and downs (see for an interesting survey Jones 1996 and Swann 1996). The first integration plans date back to the early post-war period, whereas the future development of European integration is likely to stretch far into the next century. European integration encompasses more than market integration; it also incorporates social, political, technological and monetary harmonisation. After the completion of the internal market and the steps towards opening up European economic space towards Central and Eastern Europe, much debate has in recent years centred around the challenge of transforming the European Monetary System (EMS) into the Economic and Monetary Union (EMU) (see e.g. Loureiro 1996). The EMS — already some twenty years in existence — was put in operation to ensure monetary stability in European Community countries and acted as a ‘laboratory experiment’ which might lead to complete European monetary unification. Such an integrated financial market would favour economic efficiency and would discourage national exchange rate policies aiming to achieve self-centred country-specific economic goals, while some financial discipline would be imposed on high-inflation countries (see Eichengreen et al. 1995; De Grauwe 1994; Kenen 1995).