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The Economics of Convergence towards Monetary Union in Europe

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  • De Grauwe, Paul
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    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.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1213.

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    Date of creation: Jul 1995
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    Handle: RePEc:cpr:ceprdp:1213

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    Related research

    Keywords: Monetary Integration;

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    Cited by:
    1. 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.
    2. Gordon, Robert J, 1996. "Macroeconomic Policy in the Presence of Structural Maladjustment," CEPR Discussion Papers 1493, C.E.P.R. Discussion Papers.
    3. Berben, Robert-Paul & Locarno, Alberto & Morgan, Julian & Vallés, Javier, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 0400, European Central Bank.
    4. De Grauwe, Paul, 1996. "Monetary union and convergence economics," European Economic Review, Elsevier, vol. 40(3-5), pages 1091-1101, April.

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