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The Economics of Convergence towards Monetary Union in Europe

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  • De Grauwe, Paul

Abstract

This paper surveys the literature on monetary integration to discover the economic rationale of the Maastricht convergence requirements. The traditional theory of optimum currency areas is silent on the need to have Maastricht-type convergence requirements. The new view of monetary integration based on models incorporating credibility concepts can be used to justify the budgetary convergence requirements. It cannot easily be used to justify the nominal convergence requirements. The paper argues that the dynamics of the convergence requirements will almost certainly lead to a `Great Divide' of the European Union which endangers the level of integration achieved today. We therefore conclude that less emphasis should be put on prior convergence conditions and more on strengthening the functioning of the future monetary institutions of the Union.

Suggested Citation

  • De Grauwe, Paul, 1995. "The Economics of Convergence towards Monetary Union in Europe," CEPR Discussion Papers 1213, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1213
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    Citations

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    Cited by:

    1. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1998. "Asymmetries in Housing and Financial Market Institutions and EMU," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 14(3), pages 54-80, Autumn.
    2. Morgan, Julian & Locarno, Alberto & Vallés, Javier & Berben, Robert-Paul, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank.
    3. Kocenda, Evzen & Papell, David H, 1997. "Inflation Convergence within the European Union: A Panel Data Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(3), pages 189-198, July.
    4. Nikolay Nenovsky & Kalina Dimitrova, 2002. "Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession," William Davidson Institute Working Papers Series 487, William Davidson Institute at the University of Michigan.
    5. Gordon, Robert J, 1996. "Macroeconomic Policy in the Presence of Structural Maladjustment," CEPR Discussion Papers 1493, C.E.P.R. Discussion Papers.
    6. Luigi Spaventa, 2013. "Out in the cold? Outsiders and insiders in 1999: feasible and unfeasible options," PSL Quarterly Review, Economia civile, vol. 66(266), pages 343-366.
    7. De Grauwe, Paul, 1996. "Monetary union and convergence economics," European Economic Review, Elsevier, vol. 40(3-5), pages 1091-1101, April.
    8. Philipp Paulus, 2004. "The fiscal stability impact of monetary unions - looking beneath the Stability Pact debate," Otto-Wolff-Institut Discussion Paper Series 05/2004, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.

    More about this item

    Keywords

    Monetary Integration;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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