DP1728 Transition Issues for the European Monetary Union

Author(s): Willem H. Buiter, Anne Sibert
Publication Date: November 1997
Keyword(s): European Monetary Union, stability and growth pact, Structural Reforms
JEL(s): E58, E61, E63, F31, F33, F41, F42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1728

If Stage Three of EMU starts on 1 January 1999, transition issues remain on two time scales. Until 1 July 2002, national currencies and the euro coexist as legal tender. We argue that intra-EMU currency risk exists in principle during that period, but that no EMU member can be forced out through speculative attacks. Cohabitation of Ins and Outs has an open-ended time scale. We discuss the effect of EMU on incentives for both Ins and Outs to undertake structural reform and the coordination problems associated with the distribution of seigniorage revenue and the Stability and Growth Pact.