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EMU: Ready, or Not?

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  • Maurice Obstfeld

Abstract

In this paper I focus on two specific hazard areas in the transition from Stage Two to Stage Three of European economic and monetary union (EMU), as well as on some key problems of Stage Three that EMU's monetary and fiscal structures appear ill-prepared to handle. The transitional hazards are of considerable theoretical as well as policy interest: the best way to coordinate monetary stances and lock exchange parties for a smooth switch from eleven national currencies to a single joint currency. A third problems, one that is central for EMU and to any currency union, lies behind the difficulty of the transition: the possibility of nationally asymmetric real shocks. I review that topic in the context of Ireland's recent experience. The paper goes on to discuss weaknesses in the structure of Stage Three, already much noted, connected with the provision of lender of last resort facilities in the euro zone and the framework for supervising financial institutions. The deficit and debt limits embodies in the excessive deficits procedure of the Maastrich treaty and the subsequent Stability and Growth Pact have been justified by the threat high debts might pose to the stability of the euro zone's financial markets. I consider the past and prospective fiscal adjustments of the EMU 11, and suggest these might pose future difficulties for macroeconomic policy and growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6682.

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Date of creation: Aug 1999
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Publication status: published as Princeton Essays in International Finance, no. 209, July 1998
Handle: RePEc:nbr:nberwo:6682

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  1. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  2. Robert P. Flood & Peter M. Garber, 2000. "Is Launching the Euro Unstable in the Endgame?," NBER Chapters, in: Currency Crises, pages 163-177 National Bureau of Economic Research, Inc.
  3. Obstfeld, Maurice, 1998. "A strategy for launching the Euro," European Economic Review, Elsevier, vol. 42(6), pages 975-1007, June.
  4. Calmfors, Lars, 1998. "Unemployment, Labour-Market Reform and Monetary Union," Seminar Papers 639, Stockholm University, Institute for International Economic Studies.
  5. repec:fth:coluec:754 is not listed on IDEAS
  6. David Folkerts-Landau & Peter M. Garber, 1995. "Determining the Value of a Financial Unit of Account Based on Composite Currencies: The Case of the Private ECU," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 134-157, March.
  7. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  8. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-57, September.
  9. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
  10. Kenen, Peter B, 1998. "Monetary Policy in Stage Three: A Review of the Framework Proposed by the European Monetary Institute," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 3-12, January.
  11. Pu Shen, 1997. "Settlement risk in large-value payments systems," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-62.
  12. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 205-259, 04.
  13. D. F. I. Folkerts-Landau & Peter M. Garber, 1994. "Determining the Value of a Financial Unit of Account Basedon Composite Currencies," IMF Working Papers 94/72, International Monetary Fund.
  14. Maurice Obstfeld, 1997. "Europe's gamble," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 241-317.
  15. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839, April.
  16. Calmfors, L., 1998. "Unemployment, Labour-Market Reform and Monetary Union," Papers 639, Stockholm - International Economic Studies.
  17. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
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