DP1685 EMU: Why and How It Might Happen

Author(s): Charles Wyplosz
Publication Date: August 1997
Keyword(s): Capital Mobility, Convergence, Europe, Fiscal Restraints, Monetary Union
JEL(s): E58, E61, F36, F41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1685

This paper reviews the history, economic rationale and main components of the project of establishing a monetary union in Europe by 1999. The adoption of a single currency is shown to be the best available option following the liberalization of capital movements. Much of the institutional design (central bank independence and objectives, fiscal restraints) reflects Germany?s fears of inflation as it is asked to give up its currency. The fiscal restraints are excessive, however, and a source of contractionary bias. The paper also presents the timetable of the final countdown.