Decision time for European Monetary Union

If the plans of European governments for economic and monetary union by the end of the decade are realized, a new common currency called the euro will be in use in at least a few western European countries within five years. Even earlier, starting in 1999, a new European Central Bank is slated to take control of monetary policy in the initial member countries. ; This article examines the economic and political factors that will determine whether monetary union proceeds on schedule and, if so, which countries are likely to be initial members. There is little chance that most of the countries will comply with a strict reading of the convergence criteria for membership, but evidence from the financial markets suggests that by early 1997 market participants were leaning toward the belief that the political impetus in favor of a broad union might prevail over strict enforcement of the criteria in the end, resulting in a monetary union that would encompass a substantial portion of western Europe.