Monetary Discipline and Cooperation in the European Monetary System: A Synthesis

This paper tries to explain how, despite its fundamental asymmetry, the European Monetary System may benefit all its members. I argue that the high-inflation members obtain benefits of increased monetary discipline, while the others experience improvements in their international competitiveness. For the low-inflation members, moreover, the incentive to disinflate increases as a result of EMS membership. Finally, the benefits of membership for low-inflation countries are secure; for those with higher inflation, the gains from membership depend on a variety of factors whose net effect is uncertain.