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The Economic and Monetary Union: Current and Future Prospects

Author

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  • Philip Arestis

    (University of East London and University of Leeds)

  • Malcolm Sawyer

    (The Jerome Levy Economics Institute of Bard College)

Abstract

The euro was adopted as legal tender, albeit in a virtual form, by 11 countries of the European Union on January 1, 1999, with the intention that notes and coins denominated in euros would be introduced and the national currencies would be phased out during the first six months of that year and that the euro would be fully operational by 2002. This paper first reviews the current position of the EMU member states in relation to the convergence criteria under the Maastricht Treaty and finds that there must have been a considerable degree of "fudge" for the criteria to have been met. The paper next looks at the central role of aggregate demand in the EMU and at concerns about unemployment. It next examines the prospects of the current EMU arrangements, concluding that they are highly deflationary. To overcome the deflationary bias of current proposals and as a means to alleviate the serious unemployment problem, the authors recommend that the European Central Bank be enhanced by (1) the development of a new institution, the European Union Development Bank, and (2) a modification of the Stability and Growth Pact.

Suggested Citation

  • Philip Arestis & Malcolm Sawyer, 2000. "The Economic and Monetary Union: Current and Future Prospects," Macroeconomics 0004029, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0004029
    Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 37; figures: included
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    References listed on IDEAS

    as
    1. Sefton, J A & In't Veld, J W, 1999. "Consumption and Wealth: An International Comparison," Manchester School, University of Manchester, vol. 67(4), pages 525-544, September.
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    3. Thomas I. Palley, 1998. "Restoring Prosperity: Why the U.S. Model Is Not the Answer for the United States or Europe," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 20(3), pages 337-353, March.
    4. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
    5. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-1357, September.
    6. Arestis, Philip & McCauley, Kevin & Sawyer, Malcolm, 2001. "An Alternative Stability Pact for the European Union," Cambridge Journal of Economics, Oxford University Press, vol. 25(1), pages 113-130, January.
    7. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, April.
    8. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 15-64, April.
    9. Marco BUTI & Daniele FRANCO & Hedwig ONGENA, 1997. "Budgeetary Policies during Recessions : Retrospective Application of the Stability and Growth Pact” to the Post-War Period," Discussion Papers (REL - Recherches Economiques de Louvain) 1997041, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    11. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
    12. Miller, M., 1997. "Eurosclerosis, Eurochicken and the Outlook for EMU," The Warwick Economics Research Paper Series (TWERPS) 482, University of Warwick, Department of Economics.
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    Cited by:

    1. Arestis, Philip & McCauley, Kevin & Sawyer, Malcolm, 2001. "An Alternative Stability Pact for the European Union," Cambridge Journal of Economics, Oxford University Press, vol. 25(1), pages 113-130, January.
    2. Philip Arestis & Malcolm Sawyer, 2001. "Will the Euro Bring Economic Crisis to Europe?," Macroeconomics 0103003, EconWPA.

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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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