IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/7365.html
   My bibliography  Save this paper

The Future of EMU: What Does the History of Monetary Unions Tell Us?

Author

Listed:
  • Michael D. Bordo
  • Lars Jonung

Abstract

The creation of EMU and the ECB has triggered a discussion of the future of EMU. Independent observers have pointed to a number of shortcomings or hazard areas' in the construction of EMU, such as the absence of a central lender of last resort function for EMU, the lack of a central authority supervising the financial systems of EMU, unclear and inconsistent policy guidelines for the ECB, the absence of central co-ordination of fiscal policies within EMU, unduly strict criteria for domestic debt and deficits, as set out in the Maastricht rules, in the face of asymmetric shocks, and Euroland as not an optimal' currency area. Do these 'flaws' represent major threats to the future of EMU? Or will they be successfully resolved by the European policy authorities, leading to a lasting and prosperous EMU? We provide answers to these questions by examining the historical record of monetary unions. We try to extract the key conditions for establishing and for maintaining monetary unions intact. Our main lesson from the history of monetary unions is that political factors will be the central determinants of the future of EMU. The 'economic' shortcomings of EMU will likely be overcome as long as political unity prevails within EMU.

Suggested Citation

  • Michael D. Bordo & Lars Jonung, 1999. "The Future of EMU: What Does the History of Monetary Unions Tell Us?," NBER Working Papers 7365, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7365
    Note: ME DAE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w7365.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:hal:spmain:info:hdl:2441/645 is not listed on IDEAS
    2. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 206-259.
    3. Svensson, Lars E. O., 1999. "Monetary policy issues for the Eurosystem," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 79-136, December.
    4. Lars Jonung & Fredrik Sjöholm, 1999. "Should Finland and Sweden Form a Monetary Union?," The World Economy, Wiley Blackwell, vol. 22(5), pages 683-700, July.
    5. Holtfrerich, Carl-Ludwig, 1993. "Did monetary unification precede or follow political unification of Germany in the 19th century?," European Economic Review, Elsevier, vol. 37(2-3), pages 518-524, April.
    6. Bordo,Michael D. & Capie,Forrest, 2006. "Monetary Regimes in Transition," Cambridge Books, Cambridge University Press, number 9780521030427.
    7. Thomas Sargent & Noah Williams & Tao Zha, 2009. "The Conquest of South American Inflation," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 211-256, April.
    8. Barry Eichengreen & Jeffry Frieden, 1993. "The Political Economy Of European Monetary Unification: An Analytical Introduction," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 85-104, July.
    9. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    10. repec:hal:wpspec:info:hdl:2441/645 is not listed on IDEAS
    11. Rudiger Dornbusch, 1992. "Monetary problems of post-communism: Lessons from the end of the Austro-Hungarian empire," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(3), pages 391-424, September.
    12. Obstfeld, Maurice, 1998. "EMU: Ready, or Not?," Center for International and Development Economics Research, Working Paper Series qt8qn3v8j3, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    13. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact?," Post-Print hal-03416381, HAL.
    14. Martin Feldstein, 1997. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 23-42, Fall.
    15. Eichengreen, Barry, 1990. "One Money for Europe? Lessons from the US Currency Union," Department of Economics, Working Paper Series qt6ks1k831, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    16. McCallum, Bennett T, 1992. "Money and Prices in Colonial America: A New Test of Competing Theories," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 143-161, February.
    17. John Bradley & Karl Whelan, 1992. "The Irish experience of monetary linkages with the United Kingdom and developments since joining the EMS," Open Access publications 10197/221, School of Economics, University College Dublin.
    18. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
    19. Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, July.
    20. Frédéric Zumer & Jacques Le Cacheux & Marc Flandreau, 1998. "Stability without a pact? Lessons from the European Gold Standard, 1880-1913," Working Papers hal-01037858, HAL.
    21. Alesina, Alberto & Wacziarg, Romain, 1999. "Is Europe going too far?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 1-42, December.
    22. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 3-21, Fall.
    23. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880—1914," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 116-162.
    24. Barry Eichengreen & Peter Temin, 1997. "The Gold Standard and the Great Depression," NBER Working Papers 6060, National Bureau of Economic Research, Inc.
    25. Bergman, U Michael, 1999. " Do Monetary Unions Make Economic Sense? Evidence from the Scandinavian Currency Union, 1873-1913," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 363-377, September.
    26. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
    27. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-1357, September.
    28. John Joseph Wallis & Wallace E. Oates & John Joseph Wallis & Wallace E. Oates, 2004. "The Impact of the New Deal on American Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 19, pages 325-350, Edward Elgar Publishing.
    29. Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1, July.
    30. Mr. M. Cangiano & Mr. Eric Mottu, 1998. "Will Fiscal Policy Be Effective Under EMU?," IMF Working Papers 1998/176, International Monetary Fund.
    31. Mr. Michael G. Spencer & Mr. Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire: Lessons for Currency Reform," IMF Working Papers 1992/066, International Monetary Fund.
    32. Bordo, Michael D. & Jonung, Lars, 2000. "A Return to the Convertibility Principle? Monetary And Fiscal Regimes in Historical Perspective," SSE/EFI Working Paper Series in Economics and Finance 415, Stockholm School of Economics.
    33. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact?," Post-Print hal-03416381, HAL.
    34. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 66-113.
    35. Marek Dabrowski, 1995. "The Reasons of the Collapse of the Ruble Zone," CASE Network Studies and Analyses 0058, CASE-Center for Social and Economic Research.
    36. C. A. E. Goodhart, 1995. "The Political Economy of Monetary Union (1995)," Palgrave Macmillan Books, in: The Central Bank and the Financial System, chapter 8, pages 156-202, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lars Jonung, 2002. "EMU and the euro - the first 10 years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," European Economy - Economic Papers 2008 - 2015 165, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Lars Jonung, 2002. "EMU and the Euro - The First Ten Years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," EUI-RSCAS Working Papers 46, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    3. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    4. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
    5. Lars Jonung & Eoin Drea, 2010. "It Can't Happen, It's a Bad Idea, It Won't Last: U.S. Economists on the EMU and the Euro, 1989–2002," Econ Journal Watch, Econ Journal Watch, vol. 7(1), pages 1-4–52, January.
    6. Marc Flandreau, 2001. "The Bank, the States, and the Market: an Austro-Hungarian Tale for Euroland, 1867-1914," Working Papers hal-01064887, HAL.
    7. repec:spo:wpecon:info:hdl:2441/623 is not listed on IDEAS
    8. Michael D. Bordo & Marc Flandreau, 2003. "Core, Periphery, Exchange Rate Regimes, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 417-472, National Bureau of Economic Research, Inc.
    9. repec:hal:wpspec:info:hdl:2441/623 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/623 is not listed on IDEAS
    11. repec:onb:oenbwp:y::i:43:b:1 is not listed on IDEAS
    12. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093.
    13. repec:hal:spmain:info:hdl:2441/622 is not listed on IDEAS
    14. Marc Flandreau, 2006. "The logic of compromise : monetary bargaining in Austria-Hungary 1867-1913," Working Papers hal-01065619, HAL.
    15. Paolo Pasimeni, 2014. "An Optimum Currency Crisis," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 11(2), pages 173-204, December.
    16. Barry Eichengreen, 2008. "Sui Generis EMU," European Economy - Economic Papers 2008 - 2015 303, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    17. Kevin H. O'Rourke & Alan M. Taylor, 2013. "Cross of Euros," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 167-192, Summer.
    18. Carsten Hefeker & Michael Neugart, 2015. "Fiscal Transfers in a Monetary Union with Exit Option," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 489-508, August.
    19. Beetsma, Roel & Jensen, Henrik, 2003. "Contingent deficit sanctions and moral hazard with a stability pact," Journal of International Economics, Elsevier, vol. 61(1), pages 187-208, October.
    20. Christopher M. Meissner, 2002. "A New World Order: Explaining the Emergence of the Classical Gold Standard," NBER Working Papers 9233, National Bureau of Economic Research, Inc.
    21. repec:hal:spmain:info:hdl:2441/603 is not listed on IDEAS
    22. repec:hal:spmain:info:hdl:2441/604 is not listed on IDEAS
    23. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92, National Bureau of Economic Research, Inc.
    24. Jaime Reis, 2007. "An ‘art’, not a ‘science’? Central bank management in Portugal under the gold standard, 1863–87," Economic History Review, Economic History Society, vol. 60(4), pages 712-741, November.
    25. Marc Flandreau & Clemens Jobst, 2006. "The Empirics of International Currencies: Evidence from the 19th Century," Sciences Po publications n°5529, Sciences Po.
    26. Hoffmann Andreas, 2013. "The Euro as a Proxy for the Classical Gold Standard? Government Debt Financing and Political Commitment in Historical Perspective," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 19(1), pages 41-61, November.
    27. Pietro Alessandrini & Michele Fratianni, 2009. "International Monies, Special Drawing Rights, and Supernational Money," Working Papers 2009-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7365. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.