The challenges of monetary convergence in Europe

The paper outlines the challenges for entry into EMU set up by Germany and the extent to which potential members accepted these challenges. Three groups of countries are identified: the core group (D-mark zone), the outsider group (countries not willing to participate), and the convergence group (formerly) unstable countries willing to participate). It is especially the progress towards convergence made by the convergence group and the non-compliance of most countries with the fiscal criteria which leads to uncertainty for the future path of European monetary integration: there is still no consensus on the interpretation of the convergence criteria. Additionally, there is another - maybe even more important - challenge for European monetary integration: the lack of a consensus about the blueprint for economic policy making in an European currency area - centralized versus decentralized, active versus passive monetary and exchange rate policy.