European Economic and Monetary Union: Transitional Issues and Third-Stage Dilemmas. European Policy Papers #4

This paper considers two kinds of issues facing EMU. One concerns qualifications and membership: how qualifications are evaluated and which member states are likely to meet the criteria set for membership in the third stage of EMU in 1999. The other concerns the capacity of member states, individually and collectively, to deal with economic policy after the advent of the third stage. In particular, will they be able to address the long-term problems of low growth and high unemployment that afflict so much of Europe? In regard to the first issue, the paper suggests, for supporters of EMU, some reason for optimism. It is very likely that the third stage of EMU will begin on the first day of 1999 and also that the "euro-zone" that comes into being on that day will, in all likelihood, include a large number of member states - almost certainly as many as 8 and probably as many as 10 or 11. On the second issue - the capacity of EMU to address the long-term problems of low growth and high unemployment - the paper suggests some reason for concern and pessimism. Most of the member states participating in the third stage of EMU are likely to continue experiencing low growth and high unemployment. Neither monetary policy nor exchange rate policy is likely to be applied so as to generate any significant increase in the long-term rate of economic growth or any decrease in the high levels of unemployment that now exist in most of the likely "euro-zone" members. Moreover, the Treaty creates no institutional capacity for collective action in economic policy that might enable the member states participating in EMU to redress those problems, and there seems to be little desire in the EU as a whole to create that institutional capacity.