The Economic Principles of European Integration

By Stephen Frank Overturf | Go to book overview

CHAPTER 5
Monetary Union

Tantamount to the adoption of full economic union would be the adoption of a common currency and monetary policy, otherwise known as monetary union. The criteria that should be applied in deciding whether a group of countries should form a monetary union have received some attention from economists, and for good reason, since it is clear that political boundaries do not necessarily define an "optimum currency area." If they did, then Monaco should have (and could clearly benefit from) a separate currency which would then float against the French franc.


OPTIMUM CURRENCY AREA THEORY

Once alternatives are allowed in the determination of areas to be served by a common currency, a number of different criteria can be applied, including the degree of factor mobility and the size and structure of economies. This section will concentrate on the latter, or more explicitly, the degree of openness of an economy ( McKinnon 1979). Openness for an economy may be defined in terms of total production accounted for by tradeable and nontradeable goods and services. A tradeable good is one that does or could enter into international trade, and includes importables (goods that are both produced domestically and imported) and exportables (goods that are produced at home and, in part, exported). Nontradeables (including purely domestic services and goods with high transportation costs) do not enter into trade, and, as opposed to tradeables, their domestic selling prices are determined independently of world market prices. An "open" economy, therefore, is composed of a large

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The Economic Principles of European Integration
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface xi
  • Acknowledgments xiii
  • Chapter 1 History of European Economic Integration 1
  • Chapter 2 Community Institutions 15
  • Chapter3 Customs Union Theory 21
  • Chapter 4 Factor Mobility and Tax Harmonization 35
  • Chapter 5 Monetary Union 46
  • Conclusion 59
  • Chapter 6 Industrial Policy 61
  • Chapter 7 Common Agricultural Policy 75
  • Conclusion 87
  • Chapter 8 Trade Relations: Developing Countries 89
  • Conclusion 101
  • Chapter 9 Trade Relations: More Developed Countries 102
  • Chapter 10 Regional Policy 118
  • Chapter 11 Social Policy 134
  • Conclusion 144
  • Appendix Treaty Establishing the European Economic Community 147
  • Bibliography 167
  • Index 169
  • About the Author 173
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