Macroeconomic Policy During a Transition to Monetary Union

The main conclusions of this paper are the following. In order to minimize switching costs, the name of the new EU currency should be the Deutschmark. Differential national requirements for seigniorage revenue provide a weak case for retaining national monetary independence. From the point of view of adjustment to asymmetric shocks, nominal exchange rate flexibility is at best a limited blessing and at worst a limited curse. Inter-state labour mobility in the United States does not compensate for the absence of state-level exchange rate flexibility. The absence of significant inter-member fiscal redistribution mechanisms in the EU is not an obstacle to monetary union. Convergence or divergence in real economic performance is irrelevant for monetary union. A common currency is the logical implication of unrestricted international mobility of financial capital. The Maastricht criteria are unlikely to hinder monetary union. There are no convincing economic objections left to monetary union in the EU.