The Economics of Monetary Integration

The Economics of Monetary Integration

The Economics of Monetary Integration

The Economics of Monetary Integration


Fully revised and updated following the monetary inegration of Europe, this popular introductory textbook examines recent events from both economic and political perspectives, covering costs and benefits in a scrupulously balanced account.


Does a nation increase its welfare when it abolishes its national currency and adopts some currency of a wider area? the eleven EU-countries that joined emu on 1 January 1999 have given a positive answer. Other EU-countries like the uk, Denmark, and Sweden continue to struggle with this question. Central European countries that are ready to join the European Union will have to analyse that same question.

The issue of whether nations gain by relinquishing their national currencies leads immediately to a new question. Where should the process of monetary integration stop? Should there be one currency for just eleven countries of the present emu, or for the eu, or for the whole of Europe, or maybe for the whole world? This problem leads us to an analysis of what constitutes an optimal monetary area.

In order to tackle all these problems we have to analyse systematically what the costs and benefits are of having one currency. in the first part of this book we will analyse these issues. We will study the economic costs and benefits exclusively. There is also much to be said about the political costs and benefits. These, however, are outside the scope of this book.

The start of emu on 1 January 1999 was an historic event. Few attempts have been made in history to introduce a monetary union without the force of arms. the new monetary regime in Europe creates new problems that are exciting to analyse. the second part of this book deals with these problems of running a full-fledged monetary union in Europe. We will analyse how the European Central Bank (ECB) was designed to conduct a single monetary policy. We will also discuss some of the shortcomings in this design. the issue of political independence and accountability of the ecb will loom large in this discussion.

Many of the issues with which the ecb is confronted today are practical ones. How does the ecb make a choice between the different targets a central bank should pursue? What are the most appropriate instruments to achieve these targets? Can the ecb deal with financial crises and how? How should the ecb react to different business cycle developments in Euroland? What are the relations between monetary and budgetary policies? These are some of the problems that we will study in the second part of the book.

In the previous editions of this book problems of transition towards emu received a great deal of attention. They were also the most hotly debated issues in Europe. Since the start of emu they have become much less important. the focus of the analysis has shifted towards the actual operation of emu. This is also the reason why the title of the book has been changed to Economics of Monetary Union. As a result of these developments much less importance is attached to problems of transition in the current edition. This discussion has not been eliminated altogether, because there are . . .

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