A Monetary Union in Motion: the European Experience

This Paper begins with a discussion of the relation between economics and politics in the construction of EMU. It briefly considers how the structural characteristics of the European economies relate to the Single Market programme, and how this initiative of the late 1980s both built the foundations for and led the way to EMU. It then considers in more detail the justification for monetary union and the process by which it was achieved. The analysis turns to instabilities that arise from the ‘domino effect’ in regional integration and how those relate to EMU. A discussion of the problems of fiscal consolidation in a monetary union and the ‘Stability Pact’ then leads to an enumeration of a range of problems that still face EMU. We conclude that both the integration of the real economy embodied in the Single Market programme and the political commitment – however imperfect and limited – of the European Union are necessary conditions for the success of monetary union.