Why the Euro Is a Long-Term Bet: The Reality Is That Europe Is Undergoing Radical Change

By Stark, Jurgen | The International Economy, November-December 2001 | Go to article overview

Why the Euro Is a Long-Term Bet: The Reality Is That Europe Is Undergoing Radical Change


Stark, Jurgen, The International Economy


The establishment of the European Central Bank (ECB) in June 1998 and entry into stage three of European economic and monetary union (EMU) completed the latest step in a development towards a political union in Europe that has stretched over more than four decades. The introduction of euro banknotes and coins in 2002 will make this process obvious to every member of the general public in the euro area.

Neither the majority of Europeans nor critical outside observers appear to be fully aware of the historical, political and economic dimensions of the euro project. The realization of a single European currency is the most significant monetary event to have taken place since the creation of the Bretton Woods system in 1944. It is, at the same time, the most significant innovation in the monetary history of the European continent. Monetary union is a unique project for which there were no blueprints to fall back on. Given the history and the many different features the countries of Europe have in common, it is a logical step to take. What also has to be borne in mind is the fact that the underlying economic conditions have changed rapidly since the early 1980's, owing to the increasing economic interdependence of the industrial countries and the globalization of competition and markets. There is no doubt that these developments too--along with the radical political changes in Eastern Europe--have been a driving force behind the decision to implement economic and monetary union.

In order to put EMU into perspective for a proper assessment and to make an adequate appraisal of the euro's long-term prospects, it is also necessary to look back at recent economic and monetary history in Europe. Economic and monetary union has already changed Europe and will lead to a further radical transformation. The impact of these changes will only be perceptible over the medium to long term.

The strengthened process of convergence in the early and mid-1990's produced a paradigm shift in economic and fiscal policy:

1. The stability orientation--or stability culture--that applied earlier only to some EU member countries now applies to the entire euro area. This is evident in the essential features which were the precondition for the counter-inflationary success of the D-Mark: price stability as the primary objective, guaranteed by a central bank that is independent of political influence with a policy that is geared to the medium term.

2. The soundness of general government budgets, which is to be ensured by simple, transparent budgetary policy rules likewise geared to the medium term as part of the Stability and Growth Pact.

As part of the convergence process, there was a significant reduction in inflation rates, interest rates, and fiscal deficits, especially in participating countries with traditionally more unstable conditions. The medium-term orientation of policies and the commitment to a rules-based approach both in Eurosystem monetary policy and in the budgetary policies of the member states are a major achievement for Europe. This policy approach is, at the same time, an important precondition for the long-term and sustained success of the euro. The performance of the relevant responsibilities in monetary and budgetary policy and compliance with the established rules lead automatically, as it were, to an optimum policy mix.

In Europe, this paradigm shift in economic and fiscal policy linked to the euro implies an attempted departure from "primitive Keynesianism" and from a destabilizing short-term "stop-and-go" policy in Europe. The aim is to set reliable underlying macroeconomic conditions, to sustainable non-inflationary economic growth and to avoid significant cyclical fluctuations. This policy stance--implemented in a credible manner in the medium term--will result in a strengthening of the economic fundamentals in the euro area and thus also strengthen the single currency. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Why the Euro Is a Long-Term Bet: The Reality Is That Europe Is Undergoing Radical Change
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.