Academic journal article ABA Banking Journal

Europe's Attempt at Monetary Union

Academic journal article ABA Banking Journal

Europe's Attempt at Monetary Union

Article excerpt

The emu is a ponderous, flightless relative of the ostrich that owes its survival to an Australian habitat that lacks natural predators. Like many creatures found on the subcontinent, its relative isolation has protected it from the natural forces of evolution.

The EMU (Economic and Monetary Union) is a bird of a very different feather. Rather than burying their heads in the sand, European leaders are trying to enforce an evolution from the nationalistic structure that has prevailed for centuries toward a more unified continent. Among the more critical components of this program is the establishment of a common currency (called the euro) that will be the sole unit of exchange for all countries.

With the target for implementation a little over a year away, it is still not clear whether Europe's ambitious plan will fly. Success will require bringing symmetry to monetary and fiscal policies which have traditionally differed from nation to nation.

Covering most of Western Europe, the European Union (EU) is quite a concept. The name seems an oxymoron, given the plurality of cultures, languages, religions, and government that cover the EU's 400 million inhabitants. Member nations have often been at odds with one another, yet cooperation has taken very deep root in Europe since 194g. NATO is thriving, and there is a European Parliament that actively adjudicates disputes between members. Since 1979, there has been a system (known as the European rate mechanism) that has attempted to coordinate monetary policy.

This road has not been without its bumps. Yet many Europeans feel that unity is essential to the continent's future. Tying national fortunes together, they contend, helps ensure a continuing peace and presents a formidable trading bloc to rival the competition found in the Americas and Asia.

An outline for applying this spirit to monetary affairs was adopted in the idyllic Dutch provincial town of Maastricht in 1991. The treaty stipulated that member nations would eventually abandon their individual currencies in favor of the euro. The deadline for implementing this plan was set for Jan. …

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