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The European monetary system: Crisis and future


  • Dominick Salvatore


This paper examines the immediate and the fundamental causes of the crsis that hit the European Monetary System in September 1992 and August 1993 and the obstacles that European countries face in trying to achieve their ultimate goal of full monetary union, including a single currency and a union-wide central bank by the end of this decade. The conclusion that follows from the paper is that achieving full monetary union in Europe by the end of this decade is certainly possible but not certain. A major recession or other shock affecting asymmetrically more than one large member nation could derail or at least delay the process of monetary union. Although major benefits are expected to flow from monetary union in Europe, even more important are the political benefits that such a union would provide to its members. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Dominick Salvatore, 1996. "The European monetary system: Crisis and future," Open Economies Review, Springer, vol. 7(1), pages 601-623, March.
  • Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:601-623
    DOI: 10.1007/BF01886216

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    References listed on IDEAS

    1. Kenen,Peter B., 1995. "Economic and Monetary Union in Europe," Cambridge Books, Cambridge University Press, number 9780521558839, May.
    2. Eichengreen, Barry, 1990. "Is Europe an Optimum Currency Area?," Department of Economics, Working Paper Series qt40m5g6pp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. MacDonald, Ronald & Taylor, Mark P, 1991. "Exchange Rates, Policy Convergence, and the European Monetary System," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 553-558, August.
    4. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911 Elsevier.
    5. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
    6. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521414555, May.
    7. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
    8. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-1357, September.
    9. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
    10. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
    11. Fratianni, M. & Von Hagen, J. & Waller, C., 1992. "The Maastricht Way to EMU," Princeton Studies in International Economics 187, International Economics Section, Departement of Economics Princeton University,.
    12. Smaghi, L.B. & Area, C., 1993. "Rating the EC as an Optimal Currency Area," Papers 187, Banca Italia - Servizio di Studi.
    13. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521424899, May.
    14. Laidler, David E. W., 1991. "One market, one money? Well, maybe ... sometimes," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 85-93.
    15. George Tavlas, 1994. "The theory of monetary integration," Open Economies Review, Springer, vol. 5(2), pages 211-230, March.
    16. Feldstein, Martin, 1991. "Does one market require one money?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-84.
    17. von Hagen,Juergen, "undated". "Monetary policy coordination in the european monetary system," Discussion Paper Serie B 159, University of Bonn, Germany.
    18. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
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    Cited by:

    1. Philip Arestis & Kevin McCauley & Malcolm Sawyer, 1999. "From Common Market to Emu: a Historical Perspective of European Economic and Monetary Integration," Macroeconomics 9903013, EconWPA.
    2. Salvatore, Dominick, 2005. "The euro-dollar exchange rate defies prediction," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 455-464, June.
    3. Salvatore, Dominick, 1998. "Barry Eichengreen, Globalizing Capital: A History of the International Monetary System," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 589-591, September.
    4. repec:ejw:journl:v:7:y:2010:i:1:p:4-52 is not listed on IDEAS
    5. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
    6. Dominick Salvatore, 2000. "The Present International Monetary System: Problems, Complications, and Reforms," Open Economies Review, Springer, vol. 11(1), pages 133-148, August.


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